Household mobility, asymmetric information, and the pricing of mortgage contract rates

Article Abstract:

The effect of borrower mobility on the equilibrium rates of fixed and adjustable rate mortgages (FRMs and ARMs) is examined using panel data from the Federal Home Loan Bank Board Survey of Mortgage Lending. Less mobility results in higher FRM rates, given competitive market conditions and upward-sloping yield curves. Mortgage costs of households that are relatively immobile are subsidized by FRM borrowers who are relatively mobile. The FRM rate rises with the introduction of ARMs because adverse selection causes some mobile FRM borrowers to shift to ARMs, resulting in a relatively immobile FRM pool. Borrower risk aversion and uncertainty about future ARM rates are inversely related to the FRM rate. Empirical evidence support such analyses, further indicating that some secondary mortgage pool traders are beginning to consider interregional variations in borrower mobility.

Research, Prices and rates, Mortgages, Adjustable rate mortgages

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A model of housing tenure choice in Australia

Article Abstract:

An econometric analysis of tenure choice in Sydney, Australia, and Melbourne, Australia, is conducted. The purpose of this study is to assess the impact of the user cost of housing that is occupied by an owner on the probability of homeownership in Australia. It also aims to examine the theoretical relationship between user costs and housing tenure choice. For the purpose of this research, cross-sectional data from a housing survey performed in 1991 is used. Results show that the inclusion of user costs in the tenure choice model leads to a substantial betterment of goodness-of-fit although it also contributes to the marginal probability for fixed income to become negative. This may represent an inclination for higher income groups in Sydney and Melbourne to reside in inner locations where renting is more prevalent because prices are high when compared to rents.

Models, Australia, House buying, Home buying

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An analysis of household mobility and tenure choice: an empirical study of Korea

Article Abstract:

A model of residential household joint mobility-tenure decisions is developed which is a two-way improvement on the only previously existing model. Appropriate framing is provided for the probabilistic structure framed to draw in the simultaneity of tenure and mobility decisions. The model is also based more directly on maximization-utility theory. Another characteristic of the model which is distinguishing that all independent factors in the calculation are expressed in terms of flow. Micro-level data from Korea is used in the model. Derived elasticities and coefficients are found to be consistent with what was expected, and reveal that US and Korea households behave similarly. Results indicate that the basic motivations beneath household mobility-tenure decisions do not vary by country.

South Korea, Housing policy, Residential mobility, Korea, South

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