The Impact of Federal Housing Policy on Housing Demand and Homeownership: Evidence from a Quasi-Experiment

Morris Davis, Stephen D. Oliner, Tobias J. Peter and Edward J. Pinto

Journal of Housing Economics, 2020, vol. 48, issue C

Abstract: Federal housing policy promotes homeownership by subsidizing mortgage debt for many households with few assets and low credit scores. In this paper, we exploit the Federal Housing Administration's (FHA's) surprise 50 basis point cut to its annual mortgage insurance premium in January 2015 to study the impact of federal housing policy and interest rates on housing demand for a population of households likely to be influenced by changes to policy. The premium cut, which reduced monthly payments the same amount as a three-quarter percentage point drop in the mortgage rate, increased the purchasing power of the typical FHA borrower by 6 percent. Our analysis shows FHA borrowers increased the value of the housing they purchased by 2.5 percentage points relative to a control group of borrowers in areas with minimal FHA presence. The rise in spending reflected an increase in constant-quality home prices, with no significant change in the quality of housing purchased by FHA buyers. We also estimate that the premium cut induced approximately 17,000 households to become first-time homebuyers in the initial year after the cut, an increase that fell far short of the FHA's projection.

Keywords: FHA; housing demand; homeownership; housing policy (search for similar items in EconPapers)
JEL-codes: G21 R21 R28 R31 R38 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: The impact of federal housing policy on housing demand and homeownership: Evidence from a quasi-experiment (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:48:y:2020:i:c:s1051137719300075

DOI: 10.1016/j.jhe.2020.101670

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