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A real, affordable mortgage

  • Joe Peek
  • James A. Wilcox
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Homeownership has long been a cherished American goal, but many now find that homeownership is no longer possible. The median household income of potential first-time homebuyers is now estimated to be only three-quarters that required to afford the median-priced starter home. As a consequence, the 1980s was the first decade since the Great Depression during which the aggregate homeownership rate fell. ; The Price Level Adjusted Mortgage (PLAM) represents a genuine and substantial advance in housing finance in an inflationary environment. PLAMs rearrange the timing of the mortgage payments so that they are constant in real rather than in nominal terms. Instead of being high at the beginning and low at the end of the mortgage’s life as with a level nominal payment mortgage, real payments on a PLAM are constant. Thus, PLAMs can be offered with payments that for several years are likely to be substantially below those on either fixed rate or adjustable rate mortgages. Other things equal, this rearrangement of the real payment burden allows more potential homebuyers to qualify for mortgages.

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Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

Volume (Year): (1991)
Issue (Month): Jan ()
Pages: 51-66

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Handle: RePEc:fip:fedbne:y:1991:i:jan:p:51-66
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