RESEARCH SEMINAR: What is the Microelasticity of Mortgage Demand to Interest Rates?

Could the post-Great Recession drop in housing demand have been driven in part by an increase in mortgage credit spreads across borrowers? Stephanie Lo, a doctoral student in economics at Harvard who is also a 2016 Joint Center Meyer Fellow used proprietary data on the spread of mortgage rates across borrowers with different credit scores to try and answer this question. Her results, which will also be published as a Joint Center working paper, suggest that mortgage demand does react to mortgage interest rates in significant ways.  For example, she estimates that a 25 basis point decrease in mortgage rates for high-FICO individuals is associated with a 50 percent increase in the likelihood of a potential borrower to demand a loan and an increase in loan size of approximately $15,000, or approximately 10 percent of the average origination volume.

This talk is part of the Joint Center’s ongoing Research Seminar Series, which gives faculty, senior researchers, and graduate students the opportunity to present and discuss current and recent work with a mix of scholars and practitioners.