Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Foreclosures: The Real Damage to US House Prices and the Economy

11.05.2011
The pain of foreclosure doesn’t end with the individual families who lose their homes. Foreclosures depress communities and economies. But how does one measure the direct impact of foreclosures on the overall economy?

The problem is complicated by the fact that other economic shocks – such as job losses – could be jointly driving up foreclosures and driving down economic growth.

In Foreclosures, House Prices, and the Real Economy, UC Berkeley economist Atif Mian and co-authors Amir Sufi and Francesco Trebbi exploit legal differences across states in how mortgage defaults are handled. States in the US are divided into two camps. Some – like Illinois – are judicial, meaning the lender is obligated to go through the court before foreclosing on a home. Others – like California – have no such requirement, making it much easier for banks to foreclose delinquent homes.

Exploiting such legal differences across states, the Mian et al study reveals foreclosures’ negative impact on house prices, residential investment, and durable consumption (purchase of new automobiles).

“The bottom line of this work is that we should design our bankruptcy system in terms of how the overall economy responds to financial shocks. This paper forces us to think more carefully about the exact designs of bankruptcy regulations,” says Mian.

Mian is an associate professor and co-chair of the Fisher Center for Real Estate & Urban Economics at the University of California, Berkeley’s Haas School of Business. Amir Sufi is an associate professor, University of Chicago’s Booth School of Business and Francesco Trebbi is an assistant professor, University of British Columbia.

“What we found is not only do these neighborhoods that do not require a judicial process have higher rates of foreclosure but as a result, they have a much steeper decline in housing prices and real outcomes”, says Mian. “It’s possible that the further decline of the broader economy makes people feel less wealthy and so they start becoming more cautious with new investments and buying debt.”

The researchers collected data from RealtyTrac.com, Fiserv Case Shiller Weiss, Zillow.com, and Equifax to study foreclosures, house prices, and delinquency rates by zip code, respectively.

The rate of foreclosure per delinquent home in 2008 and 2009 is twice as high in non-judicial states. A delinquent home has a nineteen percent chance of being foreclosed in a judicial state, but thirty eight percent in a non-judicial state.

Key to this finding is that Mian and his colleagues isolated the judicial requirement when comparing states. Other than that attribute, all the states share similar characteristics: the fraction of subprime borrowers, the fraction of lower income residents, the unemployment rate, the minority share of the population, the fraction of urban residents, credit growth, and growth in housing prices.

In the areas of residential investment and the consumption of durable goods, the study found a one standard deviation increase in foreclosures per homeowner leads to a larger two-thirds standard deviation decline in new residential construction permits and auto sales.

Based on these outcomes, Mian says estimates suggest that 15 percent to 30 percent of the dramatic decline in both residential investment and 2 percent to 40 percent of the decline in auto sales during the two-year period can be blamed on foreclosures.

See the full paper:
http://bit.ly/lGdfJW
Watch Atif Mian talk about his research:
http://bit.ly/ijHiwR

Pamela Tom | Newswise Science News
Further information:
http://www.berkeley.edu

More articles from Business and Finance:

nachricht Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: First evidence on the source of extragalactic particles

For the first time ever, scientists have determined the cosmic origin of highest-energy neutrinos. A research group led by IceCube scientist Elisa Resconi, spokesperson of the Collaborative Research Center SFB1258 at the Technical University of Munich (TUM), provides an important piece of evidence that the particles detected by the IceCube neutrino telescope at the South Pole originate from a galaxy four billion light-years away from Earth.

To rule out other origins with certainty, the team led by neutrino physicist Elisa Resconi from the Technical University of Munich and multi-wavelength...

Im Focus: Magnetic vortices: Two independent magnetic skyrmion phases discovered in a single material

For the first time a team of researchers have discovered two different phases of magnetic skyrmions in a single material. Physicists of the Technical Universities of Munich and Dresden and the University of Cologne can now better study and understand the properties of these magnetic structures, which are important for both basic research and applications.

Whirlpools are an everyday experience in a bath tub: When the water is drained a circular vortex is formed. Typically, such whirls are rather stable. Similar...

Im Focus: Breaking the bond: To take part or not?

Physicists working with Roland Wester at the University of Innsbruck have investigated if and how chemical reactions can be influenced by targeted vibrational excitation of the reactants. They were able to demonstrate that excitation with a laser beam does not affect the efficiency of a chemical exchange reaction and that the excited molecular group acts only as a spectator in the reaction.

A frequently used reaction in organic chemistry is nucleophilic substitution. It plays, for example, an important role in in the synthesis of new chemical...

Im Focus: New 2D Spectroscopy Methods

Optical spectroscopy allows investigating the energy structure and dynamic properties of complex quantum systems. Researchers from the University of Würzburg present two new approaches of coherent two-dimensional spectroscopy.

"Put an excitation into the system and observe how it evolves." According to physicist Professor Tobias Brixner, this is the credo of optical spectroscopy....

Im Focus: Chemical reactions in the light of ultrashort X-ray pulses from free-electron lasers

Ultra-short, high-intensity X-ray flashes open the door to the foundations of chemical reactions. Free-electron lasers generate these kinds of pulses, but there is a catch: the pulses vary in duration and energy. An international research team has now presented a solution: Using a ring of 16 detectors and a circularly polarized laser beam, they can determine both factors with attosecond accuracy.

Free-electron lasers (FELs) generate extremely short and intense X-ray flashes. Researchers can use these flashes to resolve structures with diameters on the...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Leading experts in Diabetes, Metabolism and Biomedical Engineering discuss Precision Medicine

13.07.2018 | Event News

Conference on Laser Polishing – LaP: Fine Tuning for Surfaces

12.07.2018 | Event News

11th European Wood-based Panel Symposium 2018: Meeting point for the wood-based materials industry

03.07.2018 | Event News

 
Latest News

Subaru Telescope helps pinpoint origin of ultra-high energy neutrino

16.07.2018 | Physics and Astronomy

Barium ruthenate: A high-yield, easy-to-handle perovskite catalyst for the oxidation of sulfides

16.07.2018 | Life Sciences

New research calculates capacity of North American forests to sequester carbon

16.07.2018 | Earth Sciences

VideoLinks
Science & Research
Overview of more VideoLinks >>>