The Role of Housing and Mortgage Markets in the Financial Crisis
Name
ARFE_Housing_v15.pdf
Description
Accepted version
Size
309.09 KB
Format
Adobe PDF
Checksum (MD5)
554c6a677cbf1e01ab810a1a960aed31
Author(s)
Adelino, Manuel
Schoar, Antoinette
Severino Diaz, Felipe
Date Issued
November 2018
Journal
Annual Review of Financial Economics
Publisher
Annual Reviews
Citation
Adelino, Manuel et al. "The Role of Housing and Mortgage Markets in the Financial Crisis." Annual Review of Financial Economics 10, 2018 (November 2018): 25-41 © 2018 Annual Reviews
Version
Author's final manuscript
Abstract
Ten years after the financial crisis of 2008, there is widespread agreement that the boom in mortgage lending and its subsequent reversal were at the core of the Great Recession. We survey the existing evidence, which suggests that inflated house-price expectations across the economy played a central role in driving both the demand for and the supply of mortgage credit before the crisis. The great misnomer of the 2008 crisis is that it was not a subprime crisis but rather a middle-class crisis. Inflated house-price expectations led households across all income groups, especially the middle class, to increase their demand for housing and mortgage leverage. Similarly, banks lent against increasing collateral values and underestimated the risk of defaults. We highlight how these emerging facts have essential implications for policy. Keywords: financial crisis; housing; mortgage debt; subprime; JEL R30; JEL D30; JEL G21
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1146/ANNUREV-FINANCIAL-110217-023036
