How do House Prices Respond to Mortgage Supply?

30 Pages Posted: 24 Jul 2020

See all articles by Guglielmo Barone

Guglielmo Barone

Università di Padova

Francesco David

Bank of Italy

Guido de Blasio

Bank of Italy

Sauro Mocetti

Bank of Italy

Date Written: June 26, 2020

Abstract

We examine the impact of household mortgages on house prices. Using biannual data on Italian cities for the years 2003-2015, we build an exogenous and fully data-driven indicator of mortgage supply stances and use it as an instrument for actual extended mortgages. Our results indicate that mortgages have a positive and significant causal effect on house prices, with an estimated elasticity of around 0.1. The estimated effect is larger during the expansionary phase of the housing cycle. We also find evidence of significant spatial heterogeneity: mortgages push real estate values higher in cities where the housing supply curve is less elastic or households are more dependent on external finance.

Keywords: mortgage supply, house prices, local housing market

JEL Classification: G21, R21, R51

Suggested Citation

Barone, Guglielmo and David, Francesco and de Blasio, Guido and Mocetti, Sauro, How do House Prices Respond to Mortgage Supply? (June 26, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1282, Available at SSRN: https://ssrn.com/abstract=3659547 or http://dx.doi.org/10.2139/ssrn.3659547

Guglielmo Barone

Università di Padova ( email )

Francesco David (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Guido De Blasio

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Sauro Mocetti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
23
Abstract Views
327
PlumX Metrics