The interest rate elasticity of mortgage demand: Evidence from bunching at the conforming loan limit

By A. Defusco, A. Paciorek. 2017

180 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c929a1e6a26f817886005f1b92623bf0c164526c

Citations in the corpus

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