Christian E. Weller and Kate Sabatini: On shaky ground: The U.S. mortgage boom and its economic consequence

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On shaky ground: The U.S. mortgage boom and its economic consequence

31 pp.
4.60 EUR
(March 2009)

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Christian E. Weller and Kate Sabatini deal with the consequences of the financial market crisis. They argue that following financial market deregulation in the 1990s, the U.S. mortgage market helped to finance an unprecedented housing boom, which boosted the asset values of many families. This meant, on the one hand, that families with homes had more collateral to borrow against, but it also meant that new home buyers needed to take out larger mortgages to afford a home. After 2001, the USA saw a sharp acceleration in the growth rate of household debt. Using micro survey data from the Survey of Consumer Finances conducted by the Federal Reserve and macro economic data from the Flow of Funds Accounts generated by the Federal Reserve, Weller and Sabatini analyse the effect of the housing and mortgage boom on families and the economy. In particular, they consider the growth effects and the impact on the financial and economic stability of home owners and the U.S. economy. The data indicate that entry into homeownership became harder as the boom progressed, that homeowners became more susceptible to economic and financial shocks, and that the U.S. economy had already laid the foundation for a reduction in economic growth due to less consumption and less access to credit for consumers and investors by 1.0–1.5 percentage points following years of debt-led growth.

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