Missing Home-Buyers and Rent Inflation: The Role of Interest Rates and Mortgage Underwriting Standards

Alessia De Stefani

No 2025/090, IMF Working Papers from International Monetary Fund

Abstract: I study how monetary policy interacts with mortgage underwriting standards in shaping tenure decisions and rental market equilibria. Using property-level data from the American Housing Survey, I show that the increase in mortgage rates between 2021 and 2023 pushed many potential first-time home-buyers above FHA mortgage payment-to-income limits, restricting their access to home-ownership. This resulted in additional demand pressure on local rental markets, contributing to rent price inflation in 2023. Rentals located in cities with larger shares of constrained first-time buyers experienced steeper price growth, controlling for unit characteristics and contemporaneous economic developments. Rent inflation was more pronounced in smaller units occupied by lower-income renters, underscoring the potential for second-round distributional effects of monetary policy.

Keywords: Mortgages; Homeownership; Monetary Policy; Rents; rental market equilibrium; rent inflation; mortgage underwriting standard; price growth; first-time home-buyer; Housing; Inflation; Income; Housing prices; Global (search for similar items in EconPapers)
Pages: 51
Date: 2025-05-09
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