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Unemployment and the US housing market during the Great Recession

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  • Pavel Krivenko

    (Stanford)

Abstract

This paper evaluates the role of unemployment scarring and fear thereof for the recent U.S. housing bust. I study a quantitative lifecycle model of the housing market, which features an income process that is consistent with the large and long-lasting impact of unemployment on future earnings documented in recent empirical work. The model features exogenous moving shocks consistent with survey evidence which shows that many households move for reasons unrelated to their financial situation. These shocks reduce the selection into moving, thereby amplifying the quantitative importance of unemployment shocks and tighter credit conditions in the recent bust. The reason is that movers are more sensitive to labor market and credit conditions because they are younger, have lower wealth, and less secure jobs. Housing policies such as mortgage subsidies help stabilize prices and reduce foreclosures, even if only a small fraction of homeowners receive them.

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  • Pavel Krivenko, 2018. "Unemployment and the US housing market during the Great Recession," 2018 Meeting Papers 579, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:579
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    References listed on IDEAS

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