Economic growth, House prices, Wealth effect, Collateral effect, Common correlated effects estimators, Long horizon predictability, E23, E24, R11,

The lack of a consistent definition of foreclosure discount gives rise to discount rates that vary from nonexistent to sizeable across locations and time. We define the foreclosure discount as the discount of the real estate owned (REO) sale price relative to a normal‐sale estimated market value. With a dataset of 1.34 million REO sale transactions, across 16 CBSAs between 2000 and 2012, we find three noteworthy empirical findings. First, a high REO sale concentration in a market increases the foreclosure discount. Second, foreclosure discount is negatively related to recent house‐price appreciation. Third, the often reported high foreclosure discount for lower value properties is likely due to property condition.

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If realized house prices have the wealth effect and the collateral effect on the economy, anticipated house price changes should have similar economic effects. This article empirically analyzes the effects of single-family home sales, which are shown to be able to predict house prices in the literature, on economic production, using 372 metropolitan statistic areas in the United States from the first quarter of 1981 to the second quarter of 2008 in a panel vector error correction model. Changes in home sales are found to Granger because the growth rate of per-capita gross metropolitan product and the dynamic effects are visualized with impulse response functions. Supporting evidence for the economic impact of home sales is also found in contemporaneous regressions.House price changes appear to have significant effects on the economy. Friedman's permanent income hypothesis implies that home owners would increase (decrease) their consumption if home values, and thus their expected life time wealth, increase (decrease). Recent research (Aoki, Proudman and Vlieghe 2004, Ortalo-Magné and Rady 2004, Lustig and Van Nieuwerburgh 2010, among others) suggests that increases in home values may help relax home owners' borrowing constraints and thus increase their consumption. The literature generally provides supporting evidence for both the wealth effect and the collateral effect. A strong correlation between house prices and consumption is found at both the aggregate level (see, e.g., Benjamin, Chinloy and Jud 2004, Case, Quigley andShiller 2005) and the household level (see, e.g., Haurin and Rosenthal 2006,Campbell and Cocco 2007, Bostic, Gabriel and Painter 2009. Miller, Peng and Sklarz (2010) find a strong relationship between house prices and economic production using panel data of all metropolitan statistic areas (MSA) in the United States, and they also find that the collateral effect is about three times stronger than the wealth effect.This article hypothesizes that anticipated house price changes, which affect future house collateral values and expected life time wealth, have similar * CoStar, Bethesda, MD 20814 or nmiller@costar.com.