The Causal Effect of House Prices on Mortgage Demand and Mortgage Supply

University of Zurich, Department of Economics, Working Paper No. 140

51 Pages Posted: 20 Feb 2014

See all articles by Christoph Basten

Christoph Basten

University of Zurich; Swiss Finance Institute; CESifo (Center for Economic Studies and Ifo Institute)

Cathérine Koch

Bank for International Settlements (BIS)

Date Written: February 2014

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.

Keywords: House prices, mortgage demand, mortgage supply, instrumental variables

JEL Classification: D14, G21, J61, R21

Suggested Citation

Basten, Christoph and Koch, Catherine, The Causal Effect of House Prices on Mortgage Demand and Mortgage Supply (February 2014). University of Zurich, Department of Economics, Working Paper No. 140. Available at SSRN: https://ssrn.com/abstract=2398289 or http://dx.doi.org/10.2139/ssrn.2398289

Christoph Basten (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute

c/o University of Geneva
40 Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Catherine Koch

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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