Cost of Credit, Mortgage Demand and House Prices
55 Pages Posted: 22 Mar 2021 Last revised: 19 May 2023
Date Written: May 18, 2023
This paper studies the relationship between mortgage rates and house prices. We exploit a sudden reduction in mortgage rates of state-owned banks in Turkey during the summer of 2020 as an exogenous shock to provide causal estimates of a decrease in the cost of credit on mortgage demand and house prices. The effects are estimated using a detailed dataset on all house sales with mortgages. We find that a 1 percentage point decrease in annual mortgage rates led to an increase in individual mortgage loans by 6.6% and an increase in house prices by 3.2%.
Keywords: Mortgage rates; Mortgage lending; House prices
JEL Classification: G21, G28
Suggested Citation: Suggested Citation