The role of housing and mortgage markets in the financial crisis

Journal Article (Review;Journal)

Ten years after the financial crisis of 2008, there is widespread agreement that the boom in mortgage lending and its subsequent reversal were at the core of the Great Recession. We survey the existing evidence, which suggests that inflated house-price expectations across the economy played a central role in driving both the demand for and the supply of mortgage credit before the crisis. The great misnomer of the 2008 crisis is that it was not a subprime crisis but rather a middle-class crisis. Inflated house-price expectations led households across all income groups, especially the middle class, to increase their demand for housing and mortgage leverage. Similarly, banks lent against increasing collateral values and underestimated the risk of defaults. We highlight how these emerging facts have essential implications for policy.

Full Text

Duke Authors

Cited Authors

  • Adelino, M; Schoar, A; Severino, F

Published Date

  • November 1, 2018

Published In

Volume / Issue

  • 10 /

Start / End Page

  • 25 - 41

Electronic International Standard Serial Number (EISSN)

  • 1941-1375

International Standard Serial Number (ISSN)

  • 1941-1367

Digital Object Identifier (DOI)

  • 10.1146/annurev-financial-110217-023036

Citation Source

  • Scopus