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The income elasticity of mortgage loan demand
Author(s) -
Delis Manthos D.,
Hasan Iftekhar,
Tsoumas Chris
Publication year - 2019
Publication title -
financial markets, institutions and instruments
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 23
eISSN - 1468-0416
pISSN - 0963-8008
DOI - 10.1111/fmii.12108
Subject(s) - loan , economics , mortgage loan , income elasticity of demand , shared appreciation mortgage , elasticity (physics) , monetary economics , mortgage underwriting , labour economics , price elasticity of demand , mortgage insurance , finance , microeconomics , materials science , casualty insurance , composite material , insurance policy
One explanation for the emergence of the housing market bubble and the subprime crisis is that increases in individuals’ income led to higher increases in the amount of mortgage loans demanded, especially for the middle class. This hypothesis translates to an increase in the income elasticity of mortgage loan demand before 2007. Using applicant‐level data, we test this hypothesis and find that the income elasticity of mortgage loan demand in fact declines in the years before 2007, especially for the mid‐ and lower‐middle income groups. Our finding implies that increases in house prices were not matched by increases in loan applicants’ income.