Credit Constraints

Credit Constraints, House Prices, and the Impact of Life Cycle Dynamics

How does the life cycle--namely, mortality risk and the expectation at birth of a rising age-profile of income and assets--impact house price dynamics? This paper investigates how equilibrium house prices respond to a tightening in credit constraints under two different but similarly calibrated models: one an infinite-horizon setting and the other a life-cycle environment. The main conclusion is that house price dynamics are magnified by the presence of life cycle features.

Down Payments and the Homeownership Dream: Not Such a Barrier After All?

This paper uses a structural model to quantitatively evaluate whether and under what conditions loose credit constraints are essential to achieving a high homeownership rate. A dichotomy emerges between the short run and long run response to a moderate tightening of credit, with homeownership initially falling before gradually reverting to its original level. When consumption and housing are complements, this long-run stability is robust to larger credit shifts, though the short-run adjustment can be severe.

Illiquidity and its Discontents: Trading Delays and Foreclosures in the Housing Market

This paper investigates the macroeconomic effects of search risk in the housing
market. To do so, I introduce a tractable directed search model of housing with mul-
tidimensional buyer and seller heterogeneity. I incorporate this framework in an in-
complete markets macroeconomic model with long-term mortgages and equilibrium
default. I show that search risk spills over into higher foreclosure risk by creating a
debt overhang problem. Heavily indebted sellers post high selling prices, take a long

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