Tenure Choices, Housing Prices and Mortgage Default in Dynamic Models of the Housing Market

In the following dissertation our goal is to address two different issues. First we want to bridge the gap between the existing literature in housing, that fails to fully integrate the asset side of housing, and the literature on asset pricing, that overlooks housing. We develop and solve two two-period, Overlapping Generations general equilibrium models with endogenous housing prices and savings in which consumers also make decisions regarding their tenure (owning versus renting). With these models we can effectively explain how changes in various exogenous parameters will affect housing prices and tenure choices and gain better intuition on how these changes will be related to changes in the market interest rate. Second, we contribute to the theoretical approach of mortgage defaults by extending the Anas [1995] model while maintaining several elements of the framework we developed in the first part of the dissertation. Assuming uncertainty regarding future housing prices, we investigate the effects of parameters such as interest rates, home equity levels, housing prices and income on mortgage rates and the default decisions of home owners.