Has the Effect of Foreclosures on Housing Prices Been Overstated? June 17, 2008

Host: American Enterprise Institute. Since the beginning of the subprime meltdown, policymakers, housing experts, and economists have been looking for data that would enable them to predict housing price declines for individual states and for the nation as a whole. To date, no academic study has offered a quantitative basis for evaluating the potential threat of declining home prices. Despite the absence of any reliable forecasts, Congress is poised to pass a housing relief package motivated in part by a desire to avoid a downward spiral in home prices that a wave of foreclosures might cause. In a new study by AEI visiting scholar Charles W. Calomiris of Columbia Business School and Stanley Longhofer and William Mills of Wichita State University, the authors use quarterly data for the past twenty years to construct a model of the economy that relates at the state level the current housing market, foreclosures, and other local economic conditions. Combining those data with state-level foreclosure forecasts, the authors find that many of the concerns about foreclosure effects on housing prices for the next two years have been overstated.

Official Website: http://www.aei.org/events/type.upcoming,eventID.1741,filter.all/event_detail.asp