Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/120814
Authors: 
Fuster, Andreas
Zafar, Basit
Year of Publication: 
2014
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 702
Abstract: 
The sensitivity of housing demand to mortgage rates and available leverage is key to understanding the effect of monetary and macroprudential policies on the housing market. However, since there is generally no exogenous variation in these variables that is independent of confounding factors (such as economic conditions or household characteristics), it is difficult to cleanly estimate these sensitivities empirically. We circumvent these issues by designing a survey in which respondents are asked for their maximum willingness to pay (WTP) for a home comparable to their current one, under different financing scenarios. We vary down payment constraints, mortgage rates, and non-housing wealth. We find that a relaxation of down payment constraints, or an exogenous increase in non-housing wealth, has large effects on WTP, especially for relatively poorer and more credit-constrained borrowers. On the other hand, changing the mortgage rate by 2 percentage points only changes WTP by about 5 percent on average. These findings have implications for theoretical models of house price determination, as well as for policy.
Subjects: 
housing demand
mortgage rates
down payment requirements
user cost model
household survey
JEL: 
E44
G21
R21
Document Type: 
Working Paper

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