NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Foreclosures, House Prices, and the Real Economy

Atif Mian, Amir Sufi, Francesco Trebbi

NBER Working Paper No. 16685
Issued in January 2011
NBER Program(s):   EFG

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.

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This paper was revised on May 31, 2012

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Document Object Identifier (DOI): 10.3386/w16685

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