House Price Markups and Mortgage Defaults

The transaction price of identical housing units can vary widely due to heterogeneity in buyer and seller preferences, matching, and search costs, generating what we term “markups” above or below the average market price. We measure markups for 3.4 million purchase‐money mortgages and show that they...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2023-06, Vol.55 (4), p.747-782
Main Authors: CARRILLO, PAUL E., DOERNER, WILLIAM M., LARSON, WILLIAM D.
Format: Article
Language:English
Subjects:
appraisal bias
collateral risk
Credit risk
Default
house price
Housing
Housing prices
Markups
Money
mortgage
Mortgages
Risk assessment
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Summary:The transaction price of identical housing units can vary widely due to heterogeneity in buyer and seller preferences, matching, and search costs, generating what we term “markups” above or below the average market price. We measure markups for 3.4 million purchase‐money mortgages and show that they can predict mortgage defaults and credit losses conditional on default even after accounting for collateral coverage (loan‐to‐value ratio) and a comprehensive set of other covariates. The findings suggest that standard collateral coverage estimation may be inaccurate, with implications for both individual and portfolio‐level credit risk assessment.
ISSN:0022-2879
1538-4616
DOI:10.1111/jmcb.12940