What Matters More for Foreclosure Rates ? Income or House Price Shocks? : a Metropolitan-Level Study

Abstract

The percentage of homes foreclosed in the United States doubled between 2007 and 2010. Numerous factors, including differences in house price movements, might explain the large variation in foreclosures across metropolitan areas. However, changes in house prices alone cannot explain the variation in foreclosures; empirical evidence suggests that negative income shocks, when combined with changes in house prices and other market factors, explain more of the observed variation. This study looks at metropolitan areas with unusually high unemployment rates in combination with falling house prices.