Analysis of Housing Market Dynamics Considering the Structural Characteristics of Mortgage Interest

Insoo Baek, Sanghyo Lee, Joosung Lee and Jaejun Kim
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Insoo Baek: Department of Architectural Engineering, Hanyang University, 222, Wangsipri-ro, Sungdong-gu, Seoul 04763, Korea
Sanghyo Lee: Division of Smart Convergence Engineering, Hanyang University ERICA, 55, Hanyangdaehak-ro, Sangnok-gu, Ansan-si 15588, Korea
Joosung Lee: Division of Architecture and Civil Engineering, Kangwon National University, 346, Jungang-ro, Samcheok-si 25913, Korea
Jaejun Kim: Department of Architectural Engineering, Hanyang University, 222, Wangsipri-ro, Sungdong-gu, Seoul 04763, Korea

Sustainability, 2021, vol. 13, issue 19, 1-15

Abstract: Mortgage loan interest rates consists of base interest and spread. In general, the base interest is adjusted by the government for the sustainability of the housing market. On the other hand, spread is determined by market mechanisms. Accordingly, the change pattern of base interest and spread may appear differently depending on the market situation. In the end, the effect of the government’s market intervention through interest rate policy may be different than expected. In this respect, the purpose of this paper is to analyze the effects of base interest and spread of the mortgage loan interest rate on the housing market and to derive important policy implications for the sustainability of the housing market. As a result of this study, the ineffectiveness of the government’s interest rate policies on the stability of the housing market was confirmed. The market mechanisms had more significant effects on the sustainability of the housing market than artificial political intervention. Further, housing supply policies based on the market mechanism could be more effective than housing demand policies based on interest-rate adjustments.

Keywords: Korean housing market; base interest; spread; housing policy; Fisher–DiPasquale–Wheaton model; vector error correction model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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