SF Fed: House Price Changes Alone Are Not the Sole Predictor of Default

Homeowners are likely to wait until the value of their property drops well below what they owe on their homes before walking away from their debts, researchers at the San Francisco Fed said on Monday.

“House price changes alone are not the sole predictor of default,” wrote John Krainer, a senior economist at the San Francisco Fed, and Stephen LeRoy, a professor emeritus at the University of California, Santa Barbara, and a visiting scholar at the San Francisco Fed. “The rational default point is below the ‘underwater’ point where house price equals the remaining loan balance, and depends on prospects for future house price appreciation and borrower default costs.” – Reuters

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