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

Andreas Fuster and Basit Zafar

No 702, Staff Reports from Federal Reserve Bank of New York

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 surveys (search for similar items in EconPapers)
JEL-codes: E44 G21 R21 (search for similar items in EconPapers)
Date: 2014-11-01
New Economics Papers: this item is included in nep-mac and nep-ure
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: The Sensitivity of Housing Demand to Financing Conditions: Evidence from a Survey (2021)
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