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Wednesday, July 08, 2015

'How Sensitive Is Housing Demand to Down Payment Requirements and Mortgage Rates?'

Via Liberty Street Economics, these results are what I would have expected:

How Sensitive Is Housing Demand to Down Payment Requirements and Mortgage Rates?, by Andreas Fuster and Basit Zafar: When a household is looking to buy a home, financial considerations are usually very important. In particular, in deciding “how much house to buy,” a household must ponder how large a down payment it can make at the time of purchase, and also how much it can afford to pay each month. The minimum required down payment and the interest rate on available mortgages (which determines the monthly payment) are key elements in the decision. When these variables change, this likely affects the price a household is willing and able to pay for a home, and thus the housing market overall. However, measuring the strength of these effects is notoriously difficult. In this post, which is based on a recent staff report, we describe a novel approach to measure these effects. We find that a change in down payment requirements tends to have a large effect on housing demand—households’ willingness to pay for a given home—especially for current renters, whereas the effects of a change in the mortgage rate are modest. ...

Taken together, our findings suggest that the strength of housing demand is strongly affected by fundamentals (household wealth and income) and also the quantity of available financing (especially for first-time home buyers). The price of available financing (that is, the mortgage rate) may play a less important role than commonly thought...

    Posted by on Wednesday, July 8, 2015 at 10:01 AM in Economics, Housing | Permalink  Comments (32)


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