Working Paper: NBER ID: w0755
Authors: Patric H. Hendershott; Sheng Cheng
Abstract: This paper measures the impact of nonassumable, fixed-rate, long-term mortgage financing on household mobility and housing demand during a period of accelerating inflation (l965_71l). We calculate that typical households who bought houses during the l96l7l period and utilized this type of financing would not have moved until the 1975-77 period. And this is in spite of rising incomes and a sharp fail in the real rental price or user cost of housing. We conclude that the nonassumable, fixed-rate mortgage is largely responsible for bath sluggish housing demand in the l967-79 period and its surge in the 1976-79 period. Housing activity would have been far more stable had variable-rate mortgagee been employed. Finally, the enormous gap between current mortgage rates and those existing in the19705 and the resultant huge capital gains on existing mortgages does not bode well for housing activity in the near term future.
Keywords: nonassumable fixed-rate mortgages; consumer choice; housing demand; inflation
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nonassumable fixed-rate mortgages (G21) | housing demand (R21) |
| nonassumable fixed-rate mortgages (G21) | household mobility (J62) |
| nonassumable fixed-rate mortgages (G21) | delay in household moves (R21) |
| delay in household moves (R21) | housing demand (R21) |
| nonassumable fixed-rate mortgages (G21) | suboptimal consumption pattern (E21) |
| suboptimal consumption pattern (E21) | housing mobility (R21) |
| nonassumable fixed-rate mortgages (G21) | economic efficiency (D61) |