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Economic Quarterly

First Quarter 2011

A Regional Look at the Role of House Prices and Labor Market Conditions in Mortgage Default

Sonya Ravindranath Waddell, Anne Davlin and Edward S. Prescott

A linear fixed effects statistical model is used to study variations in foreclosure rates across metropolitan statistical areas in the Fifth Federal Reserve District. We find that variations in local labor market conditions and house prices do a remarkable job of capturing variation in foreclosure rates. We study the regional variation in foreclosure rates in more detail by examining two localities in our district: Prince William County, Virginia, and Charlotte, North Carolina. Finally, the model is used to provide forecasts of foreclosure rates conditioned on possible paths of labor market conditions and house prices.

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