The Subprime Crisis and House Price Appreciation
By W. Goetzmann, Liang Peng, J. Yen. Journal of real estate finance and economics, 2011
143 citations recorded by the source corpus.
This paper argues that econometric analysis of housing price indexes before 2006 generated forecasts of future long-term price growth and low estimated probabilities of extreme price decreases. These forecasts of future increases in home-loan collateral values may have affected both the demand and the supply of mortgages. Standard time series models using repeat-sales indexes suggest that positive trends had a long half-life. Expectations based on such models could lead to an asset bubble. Analysis of data from the HMDA loan database and LoanPerformance.com at the MSA level and at the loan level substantiates the effects of past price trends on the demand and supply of subprime mortgages. On the demand side, at the MSA level, past home price increases are associated with more subprime applications, higher loan to income ratios and lower loan to value ratios of applications for both prime and subprime mortgages. This is consistent with the notion that households not only borrowed more but also invested more in home equity conditional on greater past house price increases. On the supply side, past home price appreciation had a significantly greater impact on the approval rate of subprime applications than the approval rate of prime applications. Loan level analysis indicates that past home price appreciation increased the approval rate of subprime applications but did not affect the approval rate of prime applications. Further, approved HMDA subprime loans had higher loan to income ratios in MSAs with greater past house price trends.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/921dba2c20db08978679ce85e09c9dbf76688b4e
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Citations in the corpus
- House Prices, Credit Growth, and Excess Volatility: Implications for Monetary and Macroprudential Policy (2013, background): “In a given area, past house price appreciation had a significant positive influence on subsequent loan approval rates (Goetzmann et al. 2012). Areas which experienced the largest run-ups in household leverage tended to experience the most severe recessions as measured by the subsequent fall in durab”
- Monetary Policy and the Global Housing Bubble (2011, unknown): “Third, an extensive body of research links the increase in securitization to greater access to mortgage credit for subprime borrowers (Nadauld and Sherlund, 2009; Gabriel and Rosenthal, 2007; Mian and Sufi, 2009; Goetzmann et al., 2009).”
- Personal Experiences and Expectations about Aggregate Outcomes (2019, unknown): “Overly optimistic beliefs are often cited as major contributors to the run up in house prices prior to the recent financial crisis (see, for instance, Piazzesi and Schneider, 2009; Goetzmann et al., 2012; Burnside et al., 2016; Case et al., 2012; Glaeser and Nathanson, 2017).”