Report

The sensitivity of housing demand to financing conditions: evidence from a survey


Abstract: The sensitivity of housing demand to mortgage rates and available leverage is key to understanding the effect of monetary and macroprudential policies on the housing market. However, since there is generally no exogenous variation in these variables that is independent of confounding factors (such as economic conditions or household characteristics), it is difficult to cleanly estimate these sensitivities empirically. We circumvent these issues by designing a strategic survey in which respondents are asked for their willingness to pay (WTP) for a home comparable to their current one, under different financing scenarios. We vary mortgage rates, down payment constraints, and non-housing wealth. We find that a relaxation of down payment constraints, or an exogenous increase in non-housing wealth, has large effects on WTP, especially for relatively poorer and more credit-constrained borrowers. On the other hand, changing the mortgage rate by 2 percentage points only changes WTP by about 5 percent on average. These findings have implications for theoretical models of house price determination, as well as for policy.

Keywords: housing demand; mortgage rates; down payment requirements; user cost model; household survey;

JEL Classification: E44; G21; R21;

Access Documents

File(s): File format is text/html https://www.newyorkfed.org/research/staff_reports/sr702.html
Description: Summary

File(s): File format is application/pdf https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr702.pdf
Description: Full text

Authors

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2015-08-01

Number: 702