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The causal effect of house prices on mortgage demand and mortgage supply


Basten, Christoph; Koch, Cathérine (2014). The causal effect of house prices on mortgage demand and mortgage supply. Working paper series / Department of Economics 140, University of Zurich.

Abstract

We identify the causal effect of house prices on mortgage demand and supply in Switzerland by exploiting exogenous shocks to immigration and thereby to house prices. Detailed micro data allow us to observe multiple offers for each mortgage request. We find a 1% increase in house prices to raise the requested mortgage amount by 0.52%. Due to positive feedback effects, the entire partial correlation is 0.78%. While we find higher house prices to increase mortgage demand, they induce banks to make fewer offers and charge higher rates, especially later in the boom and especially for highly leveraged households.

We identify the causal effect of house prices on mortgage demand and supply in Switzerland by exploiting exogenous shocks to immigration and thereby to house prices. Detailed micro data allow us to observe multiple offers for each mortgage request. We find a 1% increase in house prices to raise the requested mortgage amount by 0.52%. Due to positive feedback effects, the entire partial correlation is 0.78%. While we find higher house prices to increase mortgage demand, they induce banks to make fewer offers and charge higher rates, especially later in the boom and especially for highly leveraged households.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:D14, G21, J61, R21
Uncontrolled Keywords:House prices, mortgage demand, mortgage supply, instrumental variables
Language:English
Date:February 2014
Deposited On:19 Feb 2014 10:33
Last Modified:05 Apr 2016 17:42
Series Name:Working paper series / Department of Economics
Number of Pages:50
ISSN:1664-7041
Official URL:http://www.econ.uzh.ch/static/wp/econwp140.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers.php
Permanent URL: https://doi.org/10.5167/uzh-93275

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