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A Quantitative Analysis of the US Housing and Mortgage Markets and the Mortgage Crisis

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  • Satyajit Chatterjee

    (Federal Reserve Bank of Philadelphia)

  • Burcu Eyigungor

    (Federal Reserve Bank of Philadelphia)

Abstract

We construct a quantitative equilibrium model that accounts for the salient features of the US housing market, namely, the homeownership rate, the average foreclosure rate prior to the crisis and the distribution of home-equity ratios across homeowners. Given this steady state, we examine the consequences of a 3 percent unexpected increase in the supply of housing on house prices and foreclosures. We analyze the impact of the tax code, namely the the fact that the implicit rental income from housing is not taxed and that the mortgage interest payment is tax deductible, for the steady state of the model as well as for the impact of the unanticipated supply shock. We show that the model is able to account for the observed decline in house prices with a modest increase in the cost of new mortgages following the shock (crisis) and predicts a large increase in foreclosures.

Suggested Citation

  • Satyajit Chatterjee & Burcu Eyigungor, 2011. "A Quantitative Analysis of the US Housing and Mortgage Markets and the Mortgage Crisis," 2011 Meeting Papers 1109, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:1109
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    References listed on IDEAS

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    1. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2009. "Accounting For Changes In The Homeownership Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 677-726, August.
    2. Dirk Krueger & Karsten Jeske, 2004. "Housing and the Macroeconomy: The Role of Implicit Guarantees for Government Sponsored Enterprises," 2004 Meeting Papers 100, Society for Economic Dynamics.
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    5. Piskorski, Tomasz & Seru, Amit & Vig, Vikrant, 2010. "Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 369-397, September.
    6. Anthony Pennington-Cross, 2006. "The Value of Foreclosed Property," Journal of Real Estate Research, Taylor & Francis Journals, vol. 28(2), pages 193-214, January.
    7. Bulent Guler, 2015. "Innovations in Information Technology and the Mortgage Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 456-483, July.
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