The Subprime Crisis and House Price Appreciation

Goetzmann, William N.; Peng, Liang; Yen, Jacqueline

doi:10.3386/w15334

Cited by 28 publications

(21 citation statements)

References 7 publications

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“…As mentioned in the introduction, Dell'Ariccia et al (2008) and Goetzmann et al (2011) estimate a model similar to (21). But instead of relying on a borrower risk-score measure, their dependent variable is the loan approval rate (or disapproval rate in the case of the first longer period, simultaneity may be less of a concern in their work.…”

Section: Additional Resultsmentioning

confidence: 99%

“…The dependent variable in the regressions is a state-level risk-score measure, equal to the mean risk score for new borrowers in the state or, alternatively, the 10th or 25th percentile of the state's risk-score distribution. The key explanatory variable, which is intended to capture price expectations, is the lagged annual rate of house-price appreciation, also used by Goetzmann et al (2011) and Dell'Arricia et al (2008). This variable relies on the state-level CoreLogic price index.…”

Section: Introductionmentioning

confidence: 99%

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Subprime mortgages and the housing bubble

Brueckner

Calem

Nakamura

2012

Journal of Urban Economics

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This paper explores the link between the house-price expectations of mortgage lenders and the extent of subprime lending. It argues that bubble conditions in the housing market are likely to spur subprime lending, with favorable price expectations easing the default concerns of lenders and thus increasing their willingness to extend loans to risky borrowers. Since the demand created by subprime lending feeds back onto house prices, such lending also helps to fuel an emerging housing bubble. These ideas are illustrated in a theoretical model, and tentative support is found in empirical work exploring the connection between price expectations and the extent of subprime lending.

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Section: Additional Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Subprime mortgages and the housing bubble

Brueckner

Calem

Nakamura

2012

Journal of Urban Economics

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“…In a normal housing market when housing prices are relatively predictable, these measures might work well. However, in the recent housing market, those model based measures performed poorly in forecasting housing price movements (Goetzmann et al, 2009). Also, since model based measures rely solely on past price information, the same variable such as past year appreciation may represent both the past market condition and expectation, which makes it difficult to disentangle the two effects.…”

Section: Housing Expectations and Defaultmentioning

confidence: 99%

“…Because of this difficulty, current empirical mortgage research either (1) does not include housing expectation proxies in empirical models (e.g., Demyanyk and Van Hemert, 2009), (2) uses past housing appreciation (e.g., Bajari et al, 2008), or (3) uses a time series forecast (e.g., Goetzmann et al, 2009) as the proxy.…”

Section: Introductionmentioning

confidence: 99%

Using Housing Futures in Mortgage Research

Zhu

Pace

Morales

2012

J Real Estate Finan Econ

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Expectations of housing prices play an important role in real estate research. Despite their importance, obtaining a reasonable proxy for such expectations is a challenge. The existing literature on mortgage research either does not include housing expectation proxies in empirical models, or uses "backwardlooking" proxies such as past housing appreciation or time series forecasts based on past housing appreciation.This paper proposes to use the transaction prices of Case-Shiller housing futures as an alternative "forward-looking" proxy. As an example, we compare the performances of four different expectation proxies in explaining mortgage default behavior. The loan level analysis shows that the futures based expectation proxy outperforms other proxies by having the highest regression model fit and being the only proxy that shows a significant negative effect on mortgage default behavior, as theory suggests. Out of sample predictions also show that futures have better prediction accuracy than other proxies. In addition, the paper shows that futures contain additional information that is not present in the backward-looking proxies.

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“…Empirical evidence supports this view. Within the United States, past house price appreciation in a given area had a significant positive influence on subsequent loan approval rates in the same area (Dell 'Ariccia, et al 2012, Goetzmann, et al 2012.…”

Section: Evidence On Investor Expectationsmentioning

confidence: 99%

House Prices, Expectations, and Time-Varying Fundamentals

Gelain¹,

Lansing

2014

ERWP

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We investigate the behavior of the equilibrium price-rent ratio for housing in a standard asset pricing model and compare the model predictions to survey evidence on the return expectations of real-world housing investors. We allow for time-varying risk aversion (via external habit formation) and time-varying persistence and volatility in the stochastic process for rent growth, consistent with U.S. data for the period 1960 to 2013. Under fully-rational expectations, the model significantly underpredicts the volatility of the U.S. price-rent ratio for reasonable levels of risk aversion. We demonstrate that the model can approximately match the volatility of the price-rent ratio in the data if near-rational agents continually update their estimates for the mean, persistence and volatility of fundamental rent growth using only recent data (i.e., the past 4 years), or if agents employ a simple moving-average forecast rule for the price-rent ratio that places a large weight on the most recent observation. These two versions of the model can be distinguished by their predictions for the correlation between expected future returns on housing and the pricerent ratio. Only the moving-average model predicts a positive correlation such that agents tend to expect high future returns when prices are high relative to fundamentals-a feature that is consistent with a wide variety of survey evidence from real estate and stock markets.

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The Subprime Crisis and House Price Appreciation

Cited by 28 publications

References 7 publications

Subprime mortgages and the housing bubble

Subprime mortgages and the housing bubble

Using Housing Futures in Mortgage Research

House Prices, Expectations, and Time-Varying Fundamentals

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