The Effect of Interest Rates on Home Buying: Evidence from a Discontinuity in Mortgage Insurance Premiums

Bhutta, Neil; Ringo, Daniel

doi:10.17016/feds.2017.086

Cited by 7 publications

(11 citation statements)

References 42 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Through most of 2015, treatment group homes are about 1 percentage point more likely to sell each month-approximately a 7 percent increase in sale hazard. This fits the pattern demonstrated in Bhutta and Ringo (2017) of an immediate and apparently sustained jump in treatment group sales following the MIP cut.…”

Section: Resultssupporting

confidence: 86%

“…The MIP cut caused an influx of new buyers that increased the probability a current homeowner gets an offer for their home, but it had little or no direct effect on current homeowner's purchase probabilities. This is because, as Bhutta and Ringo (2017) find, the increase in home buying came entirely from lower income, highly leveraged FHA borrowers who are almost 90 percent first time home buyers. Any effect of the MIP cut on current homeowner's purchase behavior should come indirectly through the cut's effect on their ability to sell their current home.…”

Section: Estimationmentioning

confidence: 90%

“…Such variation is provided by the January 2015 reduction in mortgage insurance premiums (MIP) for Federal Housing Authority (FHA) loans. As shown by Bhutta and Ringo (2017), this surprise 50 basis point reduction in the cost of credit caused an immediate jump in the volume of home buying by populations dependent on the FHA for access to mortgage credit. Overall, the volume of purchase mortgages increased by about 2 percent in response to the MIP cut.…”

Section: Estimationmentioning

confidence: 98%

“…The two groups had similar hazard rates of selling and buying new homes. Bhutta and Ringo (2017) showed that the 2015 FHA MIP cut increased the number of home purchase mortgages originated. To confirm that our instrument based on the MIP cut is relevant, we need to show that this increase in originations translated to a measurable increase in the probability of sale for an identifiable set of homes.…”

Section: Creating the Panelmentioning

confidence: 99%

“…Our focus is on the short-run multiplier effect of policy-induced stimulus on transaction volume. We are not investigating the effects on new construction or homeownership, which stimulus policies have the potential to effect in the longer run.3Bhutta and Ringo (2017) use the same policy shock to show that home buying is highly responsive to interest rates in a large segment of the population.…”

mentioning

confidence: 99%

See 4 more Smart Citations

The Propagation of Demand Shocks Through Housing Markets

Ringo¹,

Anenberg²

2019

26th Annual European Real Estate Society Conference

Self Cite

View full text Add to dashboard Cite

The presence of incumbent homeowners creates a friction in housing markets, as incumbents may wait to match with a buyer for their current home before buying their next home. Exploiting a shock to housing demand caused by the 2015 surprise cut in Federal Housing Administration mortgage insurance premiums, we find that homeowners buy their next home sooner when the probability of their current home selling increases. This effect is especially pronounced in cold housing markets, in which homes take a long time to sell.We build and calibrate a model of the joint buyer-seller decision that explains these findings as a result of homeowners avoiding the cost of owning two homes simultaneously. Simulations of the model demonstrate that stimulus to home buying generates a substantial multiplier effect in cold housing markets by freeing up owners attempting to sell their current home, allowing them to re-enter the market as buyers. * The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors.

show abstract

Section: Resultssupporting

confidence: 86%

Section: Estimationmentioning

confidence: 90%

Section: Estimationmentioning

confidence: 98%

Section: Creating the Panelmentioning

confidence: 99%

mentioning

confidence: 99%

See 3 more Smart Citations

The Propagation of Demand Shocks Through Housing Markets

Ringo¹,

Anenberg²

2019

26th Annual European Real Estate Society Conference

Self Cite

View full text Add to dashboard Cite

show abstract

The Capitalization of Consumer Financing into Durable Goods Prices

Argyle¹,

Nadauld²,

Palmer³

et al. 2020

The Journal of Finance

View full text Add to dashboard Cite

Using loan-level data on millions of used-car transactions across hundreds of lenders, we study the consumer response to exogenous variation in credit terms. Borrowers offered shorter maturity decrease expenditures enough to offset 60% to 90% of the monthly payment increase. Most of this is driven by shifting toward lower-quality cars, but affected borrowers offset 20% to 30% of a monthly payment shock by negotiating lower prices for equivalent cars. Our results suggest that durable goods prices adjust to reflect credit terms even at the individual level, with one year of additional loan maturity increasing a car's price by 2.8%.

show abstract

Deciding between Domains: How Borrowers Weigh Market and Interpersonal Options

2022

View full text Add to dashboard Cite

Individuals routinely satisfy borrowing needs by transacting in the market or by relying on social relations. In the market domain, price logic leads borrowers to choose the cheaper option; in the interpersonal domain, role-matching logic leads borrowers to choose the relation best matched to the act. But how do individuals choose when faced with options from each domain? Drawing on theories in economic sociology that assert the economic and the social are mutually constitutive, we posit that when market and interpersonal options appear in the same choice set, the characteristics of one option inflect how people assess the other. Through two survey experiments, we show that price sensitivity toward the market option is less when the interpersonal option is role mismatched and that concerns about interpersonal borrowing changing or damaging the relationship attenuate when the market option is expensive. We discuss the implications for studies of stratification and financial decision-making.

show abstract

The Effect of Interest Rates on Home Buying: Evidence from a Discontinuity in Mortgage Insurance Premiums

Cited by 7 publications

References 42 publications

The Propagation of Demand Shocks Through Housing Markets

The Propagation of Demand Shocks Through Housing Markets

The Capitalization of Consumer Financing into Durable Goods Prices

Deciding between Domains: How Borrowers Weigh Market and Interpersonal Options

Contact Info

Product

Resources

About