The Effect of Mortgage Rate Buydowns on Housing Prices

Vinod B. Agarwal and Richard A. Phillips

Real Estate Economics, 1983, vol. 11, issue 4, 491-503

Abstract: The model developed in this paper analyzes the effect of builder‐financed FHA‐VA mortgage subsidies or buydowns on the price of housing. Hedonic pricing equations are estimated for a locationally and qualitatively uniform sample of new tract development homes. The explanatory variables are vectors of physical and financial characteristics. The latter include a continuous variable for discount points paid by builders which is indicative of the magnitude of prepaid finance charges. The results indicate that a substantial portion of mortgage subsidy costs are shifted to buyers in the form of inflated housing prices.

Date: 1983
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