The Relationship between Foreclosures and Housing Prices

This paper investigates the nature of volatility spillovers between foreclosures and housing prices for U.S. for the first quarter of 1987 through the fourth quarter of 2008 period. I use an EGARCH modeling which takes into account whether bad news has the same impact on volatility as good news. The preliminary results provide evidence of volatility spillover effect from housing prices to home foreclosures but not vice-versa.  The findings of this study are expected to enhance our understanding of their inter-relations. An appreciation of macroeconomic dynamics of housing market and foreclosures can shed light on the markets’ response to monetary policy, providing the Federal Reserve System, and fiscal policy.