Working Paper

Desperate House Sellers: Distress Among Developers

Abstract: Using granular data on home builder housing developments from the 2006-09 housing crisis, I show that builders spread house price shocks across geographically distinct projects via their internal capital markets. Builders who experience losses in one area subsequently sell homes in unaffected areas at a discount to raise cash quickly. Financially constrained firms are more likely to cut prices of homes in healthy areas in response to losses in unhealthy ones. Firms also smooth shocks across projects only during the crisis and not during the boom. These results together suggest firm internal capital markets spread negative economic shocks across space.

Keywords: Internal capital markets; Financial crises; Financial constraints; Housing markets; Product pricing;

JEL Classification: R30; G30; G31; G01; E30;

https://doi.org/10.17016/FEDS.2021.065

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2021-10-13

Number: 2021-065