A Note on Residential Mortgage Selection: Borrower Decisions and Inflation Expectations
AbstractIn this note, the choice of mortgage instrument in an inflationary environment was analyzed. Using Federal Home Loan Bank data on the proportion of loans closed as variable-rate mortgages for the period 1981 to 1987, it was found that higher anticipated inflation held with certainty increased this proportion, while greater inflation uncertainty in the sense of a Diamond-Stiglitz mean-preserving spread decreased this proportion. That is, homebuyers appear to prefer fixed-rate mortgages in the presence of inflation uncertainty and to reject lender efforts to shift interest-rate risk through variable-rate mortgages.
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Bibliographic InfoArticle provided by American Real Estate Society in its journal Journal of Real Estate Research.
Volume (Year): 4 (1989)
Issue (Month): 1 ()
Contact details of provider:
Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Web page: http://www.aresnet.org/
Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
Find related papers by JEL classification:
- L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
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- Baesel, Jerome B. & Biger, Nahum, 1980. "The Allocation of Risk: Some Implications of Fixed versus Index-Linked Mortgages," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(02), pages 457-468, June.
- Santomero, Anthony M, 1983. " Fixed versus Variable Rate Loans," Journal of Finance, American Finance Association, vol. 38(5), pages 1363-80, December.
- Donald J. Smith, 1987. "The Borrower's Choice between Fixed and Adjustable Rate Loan Contracts," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(2), pages 110-116.
- Jan K. Brueckner, 1984. "The Flexible Mortgage: Optimal Financing of a Consumer Durable," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(2), pages 136-152.
- Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July.
- L. Dwayne Barney & Harry White, 1986. "The Optimal Mortgage Payment Path Under Price Uncertainty," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(3), pages 406-413.
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