Full Citation

Title: Helping the Middle-Class: How Interest Rates Affect the Distribution of Housing Wealth

Citation Type: Miscellaneous

Publication Year: 2015

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Abstract: This paper documents that economy-wide declines in interest rates cause middle-income home-owners to experience large gains in housing wealth, while high-income and low-income home-owners experience no gains. Using a novel identification strategy that estimates latent demand for small neighborhoods and exploits minor incidental differences in the distribution of the metropolitan population of renters, I show that a 1.2% decline in mortgage interest rates leads to an average increase of 6% to 7% in housing wealth for middle-income homeowners, which translates to an average monetary increase of $7,600 to $8,900. The decline in interest rates shifts the housing demand schedule of household renters, which in turn causes an increase in house prices in neighborhoods where middle-income homeowners live.

Url: https://pdfs.semanticscholar.org/97ce/2b1484f938667d9ea71eac405563c80f2846.pdf

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Authors: Hacamo, Isaac

Publisher: Indiana University

Data Collections: IPUMS USA

Topics: Housing and Segregation, Other

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