Date of Completion


Embargo Period



Housing, Mortgage

Major Advisor

Stephen L. Ross

Associate Advisor

Dennis R. Heffley

Associate Advisor

Ling Huang

Field of Study



Doctor of Philosophy

Open Access

Campus Access


Housing plays a crucial role in household’s wealth and it is a crucial part of the household’s consumption plan. As one of the most important consumption markets in the U.S., the performance of the housing market is closely related to the overall economy. Given these considerations, it is important to examine the housing and mortgage markets and their effects theoretically and empirically.

Essay One builds a model to explain what happens to housing consumption when both rent risk and the correlation between rents and labor income are present. We find that buying an entire house is an over-hedge against the future rent risk, and with the presence of both rent risk and a correlation between rents and labor income, the diversification effect is ambiguous even with the assumption of no second period housing consumption.

Essay Two builds an option value model of home occupancy. As a renter, the timing to buy is important since both the rents and the housing prices are stochastic. I build an option value model to price the renter’s value to wait. There is about a 3-4% option value to wait in Chicago based on a geometric Brownian motion housing price assumption, and the value rises to 12% if we instead use a Bivariate Ornstein-Uhlenbeck Process featuring mean-reverting and positive auto-correlation to model the housing prices. This occurs because the renter can use historical information, wait and capture a relatively low housing price compared to discounted future rents.

Essay Three studies high cost lending and foreclosures. We find that the level of high cost lending activities in a neighborhood has a significant effect on mortgage foreclosures, even after controlling for neighborhood by year fixed effects and neighborhood trends. Also, the neighborhood effect is caused by the lenders’ activities in the neighborhood. We examine the lender penetration and find that when new high cost lenders move to the neighborhood and start to make high cost loans, they affect the existing lenders and their activities together can explain the higher foreclosure rate in the neighborhoods with more rate spread loans.