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Adjustable-Rate Mortgages, Household Mobility, and Homeownership: A Simulation Study

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  • Gabriel, Stuart A
  • Rosenthal, Stuart S

Abstract

A semi-Markov model is used to evaluate the effects of adjustable-rate mortgages on housing tenure decisions of recent movers and steady-state home ownership rates. Simulations were undertaken based on household data from the Panel Study of Income Dynamics together with information on FRM-ARM rate spreads and Treasury yield curves. Results suggest that under most interest rate patterns that prevailed in the 1980s., ARMS had little effect on the relative cost of owning to renting and, as a result, had little effect on mover tenure choice and home sales. Moreover, despite some minor projected increase in the percentage of movers that choose to own when ARMs are available, ARM effects on steady-state owner-occupancy rates appear to be largely mitigated by an ARM-induced tilt toward a relatively more mobile steady-state pool of owner-occupiers. Copyright 1993 by Kluwer Academic Publishers

Suggested Citation

  • Gabriel, Stuart A & Rosenthal, Stuart S, 1993. "Adjustable-Rate Mortgages, Household Mobility, and Homeownership: A Simulation Study," The Journal of Real Estate Finance and Economics, Springer, vol. 7(1), pages 29-41, July.
    • Handle: RePEc:kap:jrefec:v:7:y:1993:i:1:p:29-41
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    Cited by:

    1. Sumit Agarwal & Brent W. Ambrose, 2008. "Does it pay to read your junk mail? evidence of the effect of advertising on home equity credit choices," Working Paper Series WP-08-09, Federal Reserve Bank of Chicago.

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