Working Paper: NBER ID: w16685
Authors: Atif Mian; Amir Sufi; Francesco Trebbi
Abstract: States without a judicial requirement for foreclosures are twice as likely to foreclose on delinquent homeowners. Comparing zip codes close to state borders with differing foreclosure laws, we show that foreclosure propensity and housing inventory jump discretely as one enters non-judicial states. There is no jump in other homeowner attributes such as credit scores, income, or education levels. The increase in foreclosure rates in non-judicial states persists for at least five years. Using the judicial / non-judicial law as an instrument for foreclosures, we show that foreclosures lead to a large decline in house prices, residential investment, and consumer demand.
Keywords: foreclosures; house prices; real economy; judicial foreclosure; nonjudicial foreclosure
JEL Codes: E21; E32; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Nonjudicial foreclosure laws (K35) | Higher propensity to foreclose (G21) |
| Higher propensity to foreclose (G21) | Rise in housing inventory (R31) |
| Higher propensity to foreclose (G21) | Increase in foreclosure rates over five years (G21) |
| Higher foreclosure rates (G21) | Steeper decline in house prices (R31) |
| Foreclosures (G33) | Decline in house prices (R31) |
| Foreclosures (G33) | Decline in residential investment (E20) |
| Foreclosures (G33) | Decline in auto sales (L81) |