IDEAS home Printed from https://ideas.repec.org/a/eee/jhouse/v46y2019ics1051137717302784.html
   My bibliography  Save this article

An event study in relative prices and choice of loan term

Author

Listed:
  • Park, Kevin A.

Abstract

Longer amortization timelines help lower the monthly cost of a home mortgage, but the longer term and interest rate premium lead to higher cumulative costs over the life of the loan. A variety of factors may influence the choice of amortization schedule, including the relative price of different loan terms. The Federal Housing Administration (FHA) reduced mortgage insurance premiums in early 2015 for mortgages with loan terms greater than 15 years, while leaving the premiums for shorter-term loans unchanged. The large, sudden change in relative prices creates a natural experiment in choice of loan term. We find that the number and share of FHA-insured mortgages with longer loan term increased after the premium reduction. Although there is some evidence of a reduction in shorter-term refinances, however, we find no evidence of a decline in shorter-term home purchase originations. That is, the change in relative prices did not cause homebuyers to substitute longer-term mortgages for shorter-term mortgages. These results have implications for the effectiveness of policies designed to encourage building equity faster through shorter-term loans.

Suggested Citation

  • Park, Kevin A., 2019. "An event study in relative prices and choice of loan term," Journal of Housing Economics, Elsevier, vol. 46(C).
    • Handle: RePEc:eee:jhouse:v:46:y:2019:i:c:s1051137717302784
    DOI: 10.1016/j.jhe.2019.101637
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1051137717302784
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jhe.2019.101637?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kevin A. Park, 2017. "Temporary Loan Limits as a Natural Experiment in Federal Housing Administration Insurance," Housing Policy Debate, Taylor & Francis Journals, vol. 27(3), pages 449-466, May.
    2. Kerry D. Vandell, 1995. "FHA Restructuring Proposals: Alternatives and Implications," Wisconsin-Madison CULER working papers 95-09, University of Wisconsin Center for Urban Land Economic Research.
    3. Richard A. Phillips & Eric M. Rosenblatt & James H. VanderHoff, 1992. "The Effect of Relative Pricing on the Fixed-Rate Mortgage Term Decision," Journal of Real Estate Research, American Real Estate Society, vol. 7(2), pages 187-194.
    4. Kevin A. Park & Joshua J. Miller, 2018. "Mortgage Choice in Rural Housing," Housing Policy Debate, Taylor & Francis Journals, vol. 28(3), pages 443-465, May.
    5. Edward J. Pinto & Stephen D. Oliner & Tobias Peter, 2017. "The Wealth Building Home Loan," AEI Economics Working Papers 965499, American Enterprise Institute.
    6. Ernest M. Fisher, 1951. "Urban Real Estate Markets: Characteristics and Financing," NBER Books, National Bureau of Economic Research, Inc, number fish51-1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Donghoon Lee & Joseph Tracy, 2018. "Long-term outcomes of FHA first-time homebuyers," Economic Policy Review, Federal Reserve Bank of New York, issue 24-3, pages 145-165.
    2. Richard K. Green & Susan M. Wachter, 2005. "The American Mortgage in Historical and International Context," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 93-114, Fall.
    3. Fetter, Daniel K., 2016. "The Home Front: Rent Control and the Rapid Wartime Increase in Home Ownership," The Journal of Economic History, Cambridge University Press, vol. 76(4), pages 1001-1043, December.
    4. Jonathan D. Rose, 2022. "Reassessing the magnitude of housing price declines and the use of leverage in the Depressions of the 1890s and 1930s," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(4), pages 907-930, December.
    5. Edward L. Glaeser, 2013. "A Nation Of Gamblers: Real Estate Speculation And American History," NBER Working Papers 18825, National Bureau of Economic Research, Inc.
    6. Steven Gjerstad & Vernon L. Smith, 2014. "Consumption and Investment Booms in the 1920s and Their Collapse in 1930," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 81-114, National Bureau of Economic Research, Inc.
    7. Isaac F. Megbolugbe & Marja C. Hoek-Smit & Peter D. Linneman, 1996. "Understanding Neighbourhood Dynamics: A Review of the Contributions of William G. Grigsby," Urban Studies, Urban Studies Journal Limited, vol. 33(10), pages 1779-1795, December.
    8. Michael Brocker & Christopher Hanes, 2014. "The 1920s American Real Estate Boom and the Downturn of the Great Depression: Evidence from City Cross-Sections," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 161-201, National Bureau of Economic Research, Inc.
    9. Courchane, Marsha J. & Darolia, Rajeev & Zorn, Peter M., 2014. "The downs and ups of FHA lending: The government mortgage roller coaster ride," Journal of Housing Economics, Elsevier, vol. 24(C), pages 39-56.
    10. David Agorastos & Rowena Gray & Ronan Lyons & Allison Shertzer, 2024. "The Price of Housing in the United States, 1890–2006," Working Papers 24-12, Federal Reserve Bank of Philadelphia.
    11. Jonathan D. Rose, 2016. "The Resolution of a Systemically Important Insurance Company during the Great Depression," Finance and Economics Discussion Series 2016-5, Board of Governors of the Federal Reserve System (U.S.).
    12. John Lintner, 1972. "Finance and Capital Markets," NBER Chapters, in: Economic Research. Retrospect and Prospect: Finance and Capital Markets, Fiftieth Anniversary Colloquium II, pages 1-53, National Bureau of Economic Research, Inc.
    13. Jonathan D. Rose, 2011. "The Incredible HOLC? Mortgage Relief during the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(6), pages 1073-1107, September.
    14. Nigel Stapledon, 2010. "A History of Housing Prices in Australia 1880-2010," Discussion Papers 2010-18, School of Economics, The University of New South Wales.
    15. Edward L. Glaeser, 2013. "A Nation of Gamblers: Real Estate Speculation and American History," American Economic Review, American Economic Association, vol. 103(3), pages 1-42, May.
    16. Davis, Morris A. & Oliner, Stephen D. & Peter, Tobias J. & Pinto, Edward J., 2020. "The Impact of Federal Housing Policy on Housing Demand and Homeownership: Evidence from a Quasi-Experiment," Journal of Housing Economics, Elsevier, vol. 48(C).
    17. Kenneth Snowden, 2014. "A Historiography of Early NBER Housing and Mortgage Research," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 15-36, National Bureau of Economic Research, Inc.
    18. Olsen, Edgar O. & Zabel, Jeffrey E., 2015. "US Housing Policy," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 887-986, Elsevier.
    19. Eugene N. White, 2014. "Lessons from the Great American Real Estate Boom and Bust of the 1920s," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 115-158, National Bureau of Economic Research, Inc.
    20. Kenneth A. Snowden, 2010. "The Anatomy of a Residential Mortgage Crisis: A Look Back to the 1930s," NBER Working Papers 16244, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Mortgage; Federal Housing Administration; Insurance; Amortization;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jhouse:v:46:y:2019:i:c:s1051137717302784. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622881 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.