How High Interest Rates Harm Innovation
Monetary policy decisions can have meaningful long-term effects.
How High Interest Rates Harm InnovationCBR Briefing #15
- February 23, 2018
- CBR - Economics
How faster foreclosures worsened the Great Recession
US states with quick foreclosures saw bigger plunges in home prices, new housing construction, and auto sales.
US states that don’t require foreclosures through courts suffered an inordinate amount of economic damage at the height of the recession.
- States that don’t require home foreclosures to go through a judicial process were more than twice as likely as other states to foreclose on delinquent homeowners, according to Chicago Booth’s Amir Sufi, Princeton University’s Atif Mian, and the University of British Columbia’s Francesco Trebbi. States endorsing such shortcuts suffered an inordinate amount of economic damage at the height of the Great Recession.
- Nonjudicial-foreclosure states consistently reported higher foreclosure rates than states requiring a legal process (see chart). The pattern was evident even in close municipalities on the opposite sides of state borders.
- House prices in nonjudicial states dropped 43% from mid-2006 to early 2009. In states requiring foreclosures through courts, they fell 28%.
- Residential construction fell by 8 percentage points more in nonjudicial versus judicial states in 2007 and 2008. The decline in auto sales was also larger in nonjudicial states, by 5–10 percentage points between 2008 and 2011.
- The more-beaten-down states saw stronger recoveries as foreclosure rates declined nationwide.
Atif Mian, Amir Sufi, and Francesco Trebbi, “Foreclosures, House Prices, and the Real Economy,” Journal of Finance, forthcoming. Chart reprinted with permission from Wiley. Copyright 2014.
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