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Interest rate volatility and home mortgage loans

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  • Eric Hillebrand
  • Faik Koray

Abstract

The US economy has experienced substantial fluctuations in real and nominal interest rates since the 1970s. This article investigates empirically the relationship between home mortgage loans and volatility in mortgage rates for the period 1971:02 to 2003:03. Contrary to common wisdom, we find a positive relationship between mortgage rate volatility and home mortgage loans. Further investigation indicates that this is due to volatility in the bond market. In times of high interest volatility, households disinvest in government securities and invest in real assets, which yields a positive relationship between mortgage rate volatility and home mortgage loans.

Suggested Citation

  • Eric Hillebrand & Faik Koray, 2008. "Interest rate volatility and home mortgage loans," Applied Economics, Taylor & Francis Journals, vol. 40(18), pages 2381-2385.
    • Handle: RePEc:taf:applec:v:40:y:2008:i:18:p:2381-2385
    DOI: 10.1080/00036840600949538
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    References listed on IDEAS

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    Cited by:

    1. Kuo‐Shing Chen & J. Jimmy Yang, 2020. "Housing Price Dynamics, Mortgage Credit and Reverse Mortgage Demand: Theory and Empirical Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(2), pages 599-632, June.
    2. Shapran WITDIYANTO & Ariodillah HIDAYAT & Mukhlis MUKHLIS & Sri ANDAIYANI, 2022. "Economic Development through Mortgage Loan Distribution in Indonesia," Management and Economics Review, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 7(1), pages 4-13, February.

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