Working Paper: NBER ID: w12967
Authors: Kristopher Gerardi; Harvey S. Rosen; Paul Willen
Abstract: The U.S. mortgage market has experienced phenomenal change over the last 35 years. This paper develops and implements a technique for assessing the impact of changes in the mortgage market on households. Our framework, which is based on the permanent income hypothesis, that allows us to gauge the importance of borrowing constraints by estimating the empirical relationship between the value of a household's home purchase and its future income. We find that over the past several decades, housing markets have become less imperfect in the sense that households are now more able to buy homes whose values are consistent with their long-term income prospects. One issue that has received particular attention is the role that the housing Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, have played in improving the market for housing finance. We find no evidence that the GSEs' activities have contributed to this phenomenon. This is true whether we look at all homebuyers, or at subsamples of the population whom we might expect to benefit particularly from GSE activity, such as low-income households and first-time homebuyers.
Keywords: Mortgage Market; Financial Deregulation; Household Benefits
JEL Codes: D14; G21; H89
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| housing purchases (R21) | future income (J17) |
| mortgage market deregulation (G21) | housing purchases (R21) |
| mortgage market deregulation (G21) | future income (J17) |
| structural break in mortgage market (G21) | housing purchases (R21) |
| structural break in mortgage market (G21) | future income (J17) |