The Foreclosure-House Price Nexus: A Panel VAR Model for U.S. States, 1981-2009

Charles W. Calomiris, Stanley D. Longhofer, and William Miles

Final draft: March 2013
Real Estate Economics, vol. 41, no. 4, Winter 2013, pp. 709-746

Despite housing’s economic importance, little has been written on how foreclosures and home prices interact in a framework that includes macroeconomic and housing variables such as employment, permits or sales.  Panel VAR results for quarterly state-level data indicate that price-foreclosure linkages run both ways.  Foreclosures negatively impact home prices.  The negative impact of prices on foreclosures, however, is much larger.  These results suggest the low-frequency association observed between foreclosures and prices is mostly driven by the endogenous adjustment of foreclosures to prices via the strategic choices of homeowners and lenders, rather than through the effects of foreclosures on home prices.

Supplemental Files:

The following files contain supplemental graphs and regression results referenced but not presented in the body of the paper.

Data Files:

Stata and Excel data files containing the final data used in the analysis.