Local labor market shocks and residential mortgage payments: Evidence from shale oil and gas booms

Abstract

Frequently, housing is the largest item on a household's balance sheet, and therefore making monthly mortgage payments is often both the largest regular expenditure as well as a primary savings vehicle for households. However, changes to economic conditions impact household spending and savings decisions. To investigate the dynamics of this relationship, we examine mortgage payment choices of homeowners who purchased property in areas that later experienced a positive shock to local economic conditions via the shale oil and gas boom. We find that borrowers with properties located in areas with shale oil and gas booms experienced a 6% reduction in the probability of missing a mortgage payment over the period 2007–2014. Indexing these results to the size of the boom, we find that one hundred additional rigs (billion dollars of oil and gas produced) are associated with a 3.2% (1.6%) decrease in default. Additionally, we find differential effects on housing markets across geography, time, loan leverage, and credit risk categories.