Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149085
Authors: 
Head, Allen Charles
Sun, Hongfei
Zhou, Chenggang
Year of Publication: 
2016
Series/Report no.: 
Queen's Economics Department Working Paper 1359
Abstract: 
The effects of households' indebtedness on their house-selling decisions are studied in a dynamic equilibrium model with search in the housing market and defaultable long-term mortgages. In equilibrium, both sellers' asking prices and time-to-sell increase with the relative size of their outstanding mortgages. In turn, the liquidity of the housing market associated with time-to-sell determines the mortgage standards of competitive lenders, measured by the maximum loan-to-value (LTV) ratio offered at origination. Calibrated to the U.S. economy, the model generates, as observed, positive correlations over time between house prices and LTV's at origination and across sellers among asking prices, time-to-sell, and LTV's outstanding.
Subjects: 
Housing
Mortgages
Foreclosures
Directed Search
Liquidity
Block Recursive Equilibrium
JEL: 
E30
G21
R10
R31
Document Type: 
Working Paper

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