Swipe to navigate through the articles of this issue
Mortgage credit risk measurement hinges on the choice of a house price stress path, which is used to project loan losses and determine financial capital requirements. House price paths are commonly constructed at national or state levels and shock scenarios are created to mimic historical adverse market conditions. We provide evidence that this level of geographic aggregation is not granular enough in many cases—collateral risk often varies within cities. Using local house price indices that cover the United States from 1975 to 2016, we focus on house price performance in the years immediately following sustained periods of rapid acceleration. Price accelerations tend to exhibit temporal clustering and occur with greater frequency in large versus small cities. We exploit within-city variation in price dynamics to provide evidence that price initially overshoot sustainable levels but, in some areas, dynamics may reflect positive underlying economic fundamentals and can be sustained. After accelerating, price reach their trough after 4 or 5 years. Small cities show uniform declines whereas large cities exhibit greater price decreases farther away from city centers. These findings suggest differential collateral risk exists in large cities, financial losses can be predictable based on real estate location theory, and localized house price paths could aid credit risk management.
Please log in to get access to this content
To get access to this content you need the following product:
Alonso, W. (1964). Location and land use: Toward a general theory of land rent. Cambridge: Harvard University Press. CrossRef
Bogin, A., Doerner, W., & Larson, W. (2017). Local house price dynamics: New indices and stylized facts. Real Estate Economics, forthcoming.
Case, K. E., & Shiller, R. J. (1989). The efficiency of the market for single-family homes. American Economic Review, 79(1), 125–137.
Case, K. E., & Shiller, R. J. (2003). Is there a bubble in the housing market? Brookings Papers on Economic Activity, 2003(2), 299–342.
Davidoff, T. (2013). Supply elasticity and the housing cycle of the 2000s. Real Estate Economics, 41(4), 793–813. CrossRef
Davidoff, T. (2014). Supply constraints are not valid instrumental variables for home price because they are correlated with many demand factors. Working paper series, Social Science Research Network.
Davis, D. R., & Weinstein, D. E. (2002). Bones, bombs, and break points: The geography of economic activity. The American Economic Review, 92(5), 1269–1289. CrossRef
Dell’Ariccia, G., Igan, D., & Laeven, L. (2012). Credit booms and lending standards: evidence from the subprime mortgage market. Journal of Money, Credit and Banking, 44(2–3), 367–384. CrossRef
Edlund, L., Machado, C., & Sviatchi, M. (2015). Bright minds, big rent: Gentrification and the rising returns to skill. Working Paper 21729, National Bureau of Economic Research.
Favara, G., & Imbs, J. (2015). Credit supply and the price of housing. American Economic Review, 105(3), 958–992. CrossRef
Gallin, J. (2006). The long-run relationship between house price and income: evidence from local housing markets. Real Estate Economics, 34(3), 417–438. CrossRef
Glaeser, E. L., & Gyourko, J. (2005). Urban decline and durable housing. Journal of Political Economy, 113(2), 345–375. CrossRef
Glaeser, E. L., Gyourko, J., & Saiz, A. (2008). Housing supply and housing bubbles. Journal of Urban Economics, 64(2), 198–217. CrossRef
Glaeser, E. L., Gyourko, J., Morales, E., & Nathanson, C. G. (2014). Housing dynamics: An urban approach. Journal of Urban Economics, 81, 45–56. CrossRef
Guerrieri, V., Hartley, D., & Hurst, E. (2013). Endogenous gentrification and housing price dynamics. Journal of Public Economics, 100, 45–60. CrossRef
Gyourko, J., Saiz, A., & Summers, A. (2008). A new measure of the local regulatory environment for housing markets: The Wharton residential land use regulatory index. Urban Studies, 45(3), 693–729. CrossRef
Hausmann, R., Pritchett, L., & Rodrik, D. (2010). Growth accelerations. Journal of Economic Growth, 10(4), 303–329. CrossRef
Head, A., Lloyd-Ellis, H., & Sun, H. (2014). Search, liquidity, and the dynamics of house price and construction. American Economic Review, 104(4), 1172–1210. CrossRef
Lee, N. J., Seslen, T. N., & Wheaton, W. C. (2015). Do house price levels anticipate subsequent price changes within metropolitan areas? Real Estate Economics, 43(3), 782–806. CrossRef
Malpezzi, S. (1999). A simple error correction model of house price. Journal of Housing Economics, 8(1), 27–62. CrossRef
Mian, A., & Sufi, A. (2009). The consequences of mortgage credit expansion: Evidence from the U.S. mortgage default crisis. The Quarterly Journal of Economics, 124(4), 1449–1496.
Mian, A., & Sufi, A. (2011). House price, home equity-based borrowing, and the US household leverage crisis. The American Economic Review, 101(5), 2132–2156.
Mills, E. S. (1967). An aggregative model of resource allocation in a metropolitan area. American Economic Review, 57(2), 197–210.
Muth, R. F. (1969). Cities and housing: The spatial pattern of urban residential land use. Chicago: University of Chicago Press.
Ortalo-Magné, F. & Rady, S. (2006). Housing Market Dynamics: On the contribution of income shocks and credit constraints. The Review of Economic Studies, 73(2), 459–485.
Saiz, A. (2010). The geographic determinants of housing supply. The Quarterly Journal of Economics, 125(3), 1253–1296. CrossRef
Smith, S., Fuller, D., Bogin, A., Polkovnichenko, N., & Weiher, J. (2015). Countercyclical capital regime revisited: Tests of robustness. Journal of Economics and Business, 84, 50–78. CrossRef
- Local House Price Paths: Accelerations, Declines, and Recoveries
Alexander N. Bogin
William M. Doerner
William D. Larson
- Publication date
- Springer US
- The Journal of Real Estate Finance and Economics
Print ISSN: 0895-5638
Electronic ISSN: 1573-045X
microm, Neuer Inhalt/© Stellmach, Neuer Inhalt/© BBL, Neuer Inhalt/© Maturus, Pluta Logo/© Pluta, Neuer Inhalt/© hww