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The Sensitivity of Housing Demand to Financing Conditions: Evidence from a Survey

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  • Andreas Fuster
  • Basit Zafar

Abstract

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.

Suggested Citation

  • Andreas Fuster & Basit Zafar, 2021. "The Sensitivity of Housing Demand to Financing Conditions: Evidence from a Survey," American Economic Journal: Economic Policy, American Economic Association, vol. 13(1), pages 231-265, February.
    • Handle: RePEc:aea:aejpol:v:13:y:2021:i:1:p:231-65
    DOI: 10.1257/pol.20150337
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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