Recourse and (Strategic) Mortgage Defaults: Evidence from Changes in Housing Market Laws

Markov-switching impacts of housing-market expectations on credit markets

Managerial Finance ◽

10.1108/mf-08-2019-0391 ◽

2019 ◽

Vol 46 (3) ◽

pp. 381-400

Author(s):

MeiChi Huang

Keyword(s):

Housing Market ◽

Design Methodology ◽

Credit Markets ◽

Markov Switching ◽

Good Time ◽

Mortgage Default ◽

Housing Crisis ◽

Content Type ◽

Default Rates ◽

Mortgage Defaults

Purpose The purpose of this paper is to investigate linkages between households’ expectations and credit markets in the housing crisis. Design/methodology/approach In the Markov-switching framework, the sample period is classified into high- and low-impact regimes based on impacts of expectations on default rates, and the good-time-to-buy (GTTB) index is chosen to proxy for expectations toward the housing-market dynamics. Findings The results suggest that in high-impact regimes, optimistic expectations are substantially associated with lower defaults for all default rates analyzed, and second mortgage defaults are more sensitive to households’ expectations than first mortgage defaults. In low-impact regimes, the GTTB index significantly influences composite and first-mortgage default rates, but its impact is insignificant for second mortgage and bankcard default rates. Originality/value The results provide compelling evidence that households’ expectations play more important roles in credit markets in turmoil periods.

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Australia housing slump will hike debt risks

Emerald Expert Briefings ◽

10.1108/oxan-db241358 ◽

2019 ◽

Keyword(s):

Economic Growth ◽

Housing Market ◽

Housing Prices ◽

Bank Lending ◽

Fourth Quarter ◽

Household Savings ◽

Content Type ◽

Private Spending ◽

Construction Activity ◽

Mortgage Defaults

Subject Australia's housing market. Significance Construction activity fell to its lowest level for five years in December as housing prices slumped and bank lending conditions tightened. Economic growth and employment both probably declined in the fourth quarter last year. Impacts Prices should bottom out this year, after a net 10-15% drop; a steeper decline is possible, especially in Sydney. Economic growth will be affected, with construction and retail most vulnerable to reduced private spending. Falling household savings and existing high debt levels will lift risks of mortgage defaults as repayment costs rise.

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