Abstract
This paper provides novel estimates of the interest rate elasticity of mortgage demand by measuring the degree of bunching in response to a discrete jump in interest rates at the conforming loan limit-the maximum loan size eligible for purchase by Fannie Mae and Freddie Mac. The estimates indicate that a 1 percentage point increase in the rate on a 30-year fixed-rate mortgage reduces first mortgage demand by between 2 and 3 percent. One-third of this response is driven by borrowers who take out second mortgages, which implies that total mortgage debt only declines by 1.5 to 2 percent.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 210-240 |
| Number of pages | 31 |
| Journal | American Economic Journal: Economic Policy |
| Volume | 9 |
| Issue number | 1 |
| DOIs | |
| State | Published - Feb 1 2017 |
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)