The effect of mortgage interest deduction and mortgage characteristics on house prices

Sven Damen, Frank Vastmans and Erik Buyst

Journal of Housing Economics, 2016, vol. 34, issue C, 15-29

Abstract: In many countries, house prices are overvalued according to price-to-income ratios. We propose that the borrower’s ability to pay (ATP) through a mortgage is a long-run house price fundamental and find convincing evidence by means of cointegration tests, granger causality, and an elasticity of house prices with respect to ATP close to one. ATP incorporates the effect of a decreasing trend in interest rates, changes in mortgage interest deduction and mortgage characteristics. We apply the model to the United States of America, United Kingdom, Belgium, the Netherlands, Sweden, Norway, Finland and Denmark. The results provide an intuitive alternative to standard house price models.

Keywords: House prices; Price-to-income ratio; House price fundamentals; Cointegration (search for similar items in EconPapers)
JEL-codes: E44 G12 R21 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1051137716301206
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:34:y:2016:i:c:p:15-29

DOI: 10.1016/j.jhe.2016.06.002

Access Statistics for this article

Journal of Housing Economics is currently edited by H. O. Pollakowski

More articles in Journal of Housing Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().