February 2024

In a new project, Jiayi Zheng (ANU), Min Zhu (UQ) and I study the impact of assumption financing on housing prices and supply. Here is the abstract:

The dramatic increases in mortgage rates over the past two years have sparked heightened interest in assumable mortgages and their impact on housing supply and pricing. Using a novel dataset that encompasses property transactions with assumable financing options across 14 US regions, we document that the assumption feature enhances the value of the average property by nearly $100K. Over 80% of the market value of the option to assume is capitalized into this price premium, with the precise fraction contingent upon various factors including the seller's bargaining power. We present evidence consistent with a lock-in effect induced by high interest rates, and show that mortgage assumption mitigates this effect, thereby promoting household mobility.