Measuring the sensitivity of housing demand to mortgage rates and available leverage is challenging because there is generally no exogenous variation in these variables. This paper circumvents this issue by designing a strategic survey in which respondents report their willingness to pay (WTP) for a home under different financing scenarios. Relaxation of down payment constraints or an exogenous increase in nonhousing wealth has large effects on WTP, especially for poorer and more credit-constrained households. However, changing the mortgage rate has only moderate effects on WTP. These findings have implications for theoretical models of house price determination and for policy.
Fuster, Andreas, and Basit Zafar.
"The Sensitivity of Housing Demand to Financing Conditions: Evidence from a Survey."
American Economic Journal: Economic Policy,
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Household Finance: Household Saving, Borrowing, Debt, and Wealth
Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
Production Analysis and Firm Location: Government Policy