Affordability, financial innovation and the start of the housing boom

Jane K. Dokko, Benjamin Keys and Lindsay E. Relihan

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: At their peak in 2005, roughly 60 percent of all purchase mortgage loans originated in the United States contained at least one non-traditional feature. These features, which allowed borrowers easier access to credit through teaser interest rates, interest-only or negative amortization periods, and extended payment terms, have been the subject of much regulatory and popular criticism. In this paper, we construct a novel county-level dataset to analyze the relationship between rising house prices and non-traditional features of mortgage contracts. We apply a break-point methodology and find that in housing markets with breaks in the mid-2000s, a strong rise in the use of non-traditional mortgages preceded the start of the housing boom. Furthermore, their rise was coupled with declining denial rates and a shift from FHA to subprime mortgages. Our findings support the view that a change in mortgage contract availability and a shift toward subprime borrowers helped to fuel the rise of house prices during the last decade.

Keywords: housing policy; mortgage loans; subprime mortgage (search for similar items in EconPapers)
JEL-codes: G22 R21 R22 (search for similar items in EconPapers)
Date: 2019-03-28
New Economics Papers: this item is included in nep-spo
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Affordability, financial innovation and the start of the housing boom (2019)
Working Paper: Affordability, Financial Innovation, and the Start of the Housing Boom (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1611

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