Finance

Recession

Theology

Macroeconomics

General insurance

Labour economics

Philosophy

Economics

Foreclosure

Unemployment

Generosity

Monetary economics

Default

Mortgage insurance

Great recession

Insurance policy

American Economic Review

This paper studies the impact of unemployment insurance (UI) on the housing market. Exploiting heterogeneity in UI generosity across US states and over time, we find that UI helps the unemployed avoid mortgage default. We estimate that UI expansions during the Great Recession prevented more than 1.3 million foreclosures and insulated home values from labor market shocks. The results suggest that policies that make mortgages more affordable can reduce foreclosures even when borrowers are severely underwater. An optimal UI policy during housing downturns would weigh, among other benefits and costs, the deadweight losses avoided from preventing mortgage defaults. (JEL D14, E32, G21, J65, R31)

Unemployment Insurance as a Housing Market Stabilizer