Tuesday, February 16, 2010
A number of recent newspaper articles about the approaching end of several government programs that attempted to re-inflate the housing bubble (by subsidizing mortgages, buying up mortgage securities, etc.), and of the continuing phenomenon of "upside down" mortgages suggests to me the possibility of a great empirical work for property.
For many years, it has been commonplace in our profession to presume that there is a very large premium that people put on their home ownership. In the takings literature, we refer to this as the surplus subjective value, and it means the extra value that people attach to ownership/possession of their particular home, above and beyond market value.
Today there is huge number of "upside down" properties, in which the excess due on mortgages exceeded the market value of the houses. The number of upside-down properties will doubtless rise as the government reduces efforts to re-inflate the bubble. Since most states make mortgage loans non-recourse, owners of upside-down properties can voluntarily default on their mortgages and and wipe out the entire debt. In other words, we now have a vast number of cases where people have to choose between staying in the house (keeping the subjective value of the house) or walking away (losing the subjective value but getting the value of the wiped-out indebtedness, less the costs of lower credit score).
Collect the numbers, and compare. If you get a big enough database, you should begin to get some indications of how large the surplus subjective value is, at least on average. No, this is not a perfect measure. But it seems like a potentially interesting start.