The Mortgage Rate Conundrum

Giorgio Primiceri, Andrea Tambalotti and Alejandro Justiniano

No 471, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We document the emergence of a disconnect between mortgage and Treasury interest rates in the summer of 2003. Following the end of the Federal Reserve easing cycle in June 2003, mortgage rates failed to rise according to their historical relationship with Treasury yields, leaving mortgage rates persistently depressed. We label this phenomenon the “mortgage rate conundrum,” because it echoes the under-reaction of long-term Treasury rates to the rise in the Federal Funds rate during the subsequent tightening cycle highlighted by Alan Greenspan. We uncover this phenomenon by analyzing a large dataset with millions of loan-level observations. These detailed data allow us to control for a variety of loan, borrower and geographic characteristics, guaranteeing that the low level of mortgage rates after mid 2003 was not just due to a change in observable risk factors.

Date: 2017
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (25)

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Related works:
Working Paper: The Mortgage Rate Conundrum (2017)
Working Paper: The Mortgage Rate Conundrum (2017)
Working Paper: The mortgage rate conundrum (2017)
Working Paper: The Mortgage Rate Conundrum (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:471

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