American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
The Interest Rate Elasticity of Mortgage Demand: Evidence from Bunching at the Conforming Loan Limit
American Economic Journal: Economic Policy
vol. 9,
no. 1, February 2017
(pp. 210–40)
Abstract
This paper provides novel estimates of the interest rate elasticity of mortgage demand by measuring the degree of bunching in response to a discrete jump in interest rates at the conforming loan limit--the maximum loan size eligible for purchase by Fannie Mae and Freddie Mac. The estimates indicate that a 1 percentage point increase in the rate on a 30-year fixed-rate mortgage reduces first mortgage demand by between 2 and 3 percent. One-third of this response is driven by borrowers who take out second mortgages, which implies that total mortgage debt only declines by 1.5 to 2 percent.Citation
DeFusco, Anthony A., and Andrew Paciorek. 2017. "The Interest Rate Elasticity of Mortgage Demand: Evidence from Bunching at the Conforming Loan Limit." American Economic Journal: Economic Policy, 9 (1): 210–40. DOI: 10.1257/pol.20140108Additional Materials
JEL Classification
- D14 Household Saving; Personal Finance
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- R21 Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
- R31 Housing Supply and Markets
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