The Cyclical Dynamics of Illiquid Housing, Debt, and Foreclosures

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper quantitatively accounts for the cyclical dynamics of key macroeconomic housing and mortgage market variables using a tractable, search-theoretic model of housing with equilibrium mortgage default. To explain these dynamics, the model highlights the importance of liquidity spirals that arise from the interaction of search frictions and endogenous credit constraints. During housing busts, longer selling times spill over into higher foreclosure risk, thereby magnifying the response of credit constraints to the depressed housing market. This contraction in credit then deepens the downturn. During booms, the reverse occurs. Based on these insights, I consider a foreclosure reform that makes all mortgages full recourse, and I show that implementing such a reform would reduce foreclosures and dampen housing dynamics. Terms of use: Documents in EconStor may

Monetary Policy, Residential Investment, and Search Frictions: An Empirical and Theoretical Synthesis

“…However, all of these papers, including Ungerer (2015), have a constant or exogenous housing stock with no role for residential investment. Head and Lloyd-Ellis (2012), Karahan and Rhee (2013), Head, Lloyd-Ellis, and Sun (2014) and Hedlund (2015) provide a small, recent literature that includes both housing search and endogenous housing construction. However, all of these papers are real business cycle models, and none of them study monetary policy.…”