Alternative Mortgage Instruments, Qualifications Constraints, and the Demand for Housing: An Empirical Analysis

Posted: 25 Oct 1999

See all articles by Richard Phillips

Richard Phillips

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate

James Vanderhoff

Rutgers University

Abstract

Government-guaranteed mortgage loans (GFRMs) and adjustable- rate mortgages (ARMs) were introduced to make payment to income (PTI) and loan to value (LTV) qualification conven- tions less restrictive. This paper analyzes the effect of GFRMs and ARMs on the demand for housing. Using a large national data set for the 1988 to 1989 period, we employ a two-stage procedure to estimate housing demand. In the first stage, a multinominal logit model estimates the probability of choosing an FRM, ARM, or GFRM. Predicted values from the logit are used to construct user costs and estimate housing demand. Using the model estimates, we simulate demand under four different mortgage availability regimes: FRM, FRM and GFRM, FRM and ARM, and all three. These simulations indicate that GFRMs, by relaxing LTV constraints, increase housing demand by approximately 6.2% relative to the FRM regime; the addition of ARMs, by relaxing both PTI and LTV constraints, raises demand by an additional 6%, for a total of 12.2% with inclusion of all alternatives.

JEL Classification: G21

Suggested Citation

Phillips, Richard A. and Vanderhoff, James H., Alternative Mortgage Instruments, Qualifications Constraints, and the Demand for Housing: An Empirical Analysis. JOURNAL OF THE AMERICAN REAL ESTATE AND URBAN ECONOMICS ASSOCIATION, Vol 22 No 3, Fall 1994. Available at SSRN: https://ssrn.com/abstract=5584

Richard A. Phillips

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate ( email )

Richmond, VA 23284
United States
804-828-7188 (Phone)
804-828-8884 (Fax)

James H. Vanderhoff (Contact Author)

Rutgers University ( email )

360 ML King Jr. Blvd.
Newark, NJ 07102
United States
973-353-5256 (Phone)
973-353-5259 (Fax)

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