The Income Elasticity of Mortgage Loan Demand

25 Pages Posted: 5 Apr 2019

See all articles by Manthos D. Delis

Manthos D. Delis

Audencia Business School

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Chris Tsoumas

Hellenic Open University (deceased)

Date Written: May 2019


One explanation for the emergence of the housing market bubble and the subprime crisis is that increases in individuals’ income led to higher increases in the amount of mortgage loans demanded, especially for the middle class. This hypothesis translates to an increase in the income elasticity of mortgage loan demand before 2007. Using applicant‐level data, we test this hypothesis and find that the income elasticity of mortgage loan demand in fact declines in the years before 2007, especially for the mid‐ and lower‐middle income groups. Our finding implies that increases in house prices were not matched by increases in loan applicants’ income.

Keywords: distribution of income, income elasticity, mortgage loan demand, subprime crisis

JEL Classification: G21, G01, D12, E44, R21

Suggested Citation

Delis, Manthos D. and Hasan, Iftekhar and Tsoumas, Chris, The Income Elasticity of Mortgage Loan Demand (May 2019). Financial Markets, Institutions & Instruments, Vol. 28, Issue 2, pp. 115-139, 2019, Available at SSRN: or

Manthos D. Delis (Contact Author)

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312

Iftekhar Hasan

Fordham University ( email )

NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006

Chris Tsoumas

Hellenic Open University (deceased)


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