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Desperate House Sellers: Distress Among Developers

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Abstract

Using granular data on home builder housing developments from the 2006-09 housing crisis, I show that builders spread house price shocks across geographically distinct projects via their internal capital markets. Builders who experience losses in one area subsequently sell homes in unaffected areas at a discount to raise cash quickly. Financially constrained firms are more likely to cut prices of homes in healthy areas in response to losses in unhealthy ones. Firms also smooth shocks across projects only during the crisis and not during the boom. These results together suggest firm internal capital markets spread negative economic shocks across space.

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  • Eileen van Straelen, 2021. "Desperate House Sellers: Distress Among Developers," Finance and Economics Discussion Series 2021-065, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2021-65
    DOI: 10.17016/FEDS.2021.065
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    More about this item

    Keywords

    Internal capital markets; Financial crises; Financial constraints; Housing markets; Product pricing;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G01 - Financial Economics - - General - - - Financial Crises
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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