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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Friebel, Guido / Mendola, Mariapia / Requate, Till / Tsui, Kevin / Wichardt, Philipp / Zulehner, Christine

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The Mortgage Market Meltdown and House Prices

R. Glenn Hubbard1 / Christopher J Mayer2

1Columbia University,

2Columbia University,

Citation Information: The B.E. Journal of Economic Analysis & Policy. Volume 9, Issue 3, ISSN (Online) 1935-1682, DOI: 10.2202/1935-1682.2223, March 2009

Publication History

Published Online:
2009-03-24

Abstract

This paper argues that the U.S. mortgage debacle must be analyzed in the broader setting of global real estate markets. Recent U.S. home price growth closely tracked increases in other developed economies. The analysis distinguishes among market regions in terms of supply elasticity and localized transactions-costs. A series of user-cost models are presented which imply that interest rate fluctuations must figure prominently in any explanation of movements in price/rent ratios. National factors such as the expansion of subprime credit must also be accounted for. The paper concludes with policy prescriptions addressing rapid price declines and elevated interest-rate spreads. We argue that the federal government should play a leading role in helping to reduce interest rates on new mortgages and cushion against underwriting losses on the existing balance sheets of lenders.

Citing Articles

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[1]
Martin Seay, Andrew Carswell, Robert Nielsen, and Lance Palmer
Family and Consumer Sciences Research Journal, 2013, Volume 41, Number 4, Page 363
[2]
SARAH CARRINGTON and JAKOB B. MADSEN
Economic Record, 2011, Volume 87, Number 279, Page 537

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