House Prices, Debt Burdens, and the Heterogeneous Effects of Mortgage Rate Shocks

William Larson and Andrew Martinez

No 2024-002, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting

Abstract: We examine the heterogeneous effects of mortgage interest rate shocks on house prices in a monthly panel of U.S. cities. Mortgage interest rate shocks, identified using Blue Chip forecast errors and monetary policy surprises, affect house prices more in cities where more borrowers have high debt burdens, consistent with a model with both price frictions and credit constraints. Responsiveness to interest rate shocks thus varies by location and time period, and is related to both borrower characteristics and underwriting rules. This has important implications for understanding monetary policy transmission, systemic risk, and the role of household finances in the macroeconomy.

Keywords: Asset Pricing; Household Finance; House Price Bubbles (search for similar items in EconPapers)
JEL-codes: C23 E43 G21 G51 R30 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2024-07
New Economics Papers: this item is included in nep-cba and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gwc:wpaper:2024-002

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