Accelerating Inflation, Nonassumable Fixed-Rate Mortgages, and Consumer Choice and Welfare

36 Pages Posted: 19 Aug 2004 Last revised: 27 Jul 2010

See all articles by Patric H. Hendershott

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Sheng-Cheng Hu

Academia Sinica - Institute of Economics; National Bureau of Economic Research (NBER)

Date Written: September 1981

Abstract

This paper measures the impact of nonassumable, fixed-rate, long-term mortgage financing on household mobility and housing demand during a period of accelerating inflation (l965_71l). We calculate that typical households who bought houses during the l96l7l period and utilized this type of financing would not have moved until the 1975-77 period. And this is in spite of rising incomes and a sharp fail in the real rental price or user cost of housing. We conclude that the nonassumable, fixed-rate mortgage is largely responsible for bath sluggish housing demand in the l967-79 period and its surge in the 1976-79 period. Housing activity would have been far more stable had variable-rate mortgagee been employed. Finally, the enormous gap between current mortgage rates and those existing in the19705 and the resultant huge capital gains on existing mortgages does not bode well for housing activity in the near term future.

Suggested Citation

Hendershott, Patric H. and Hu, Sheng-Cheng, Accelerating Inflation, Nonassumable Fixed-Rate Mortgages, and Consumer Choice and Welfare (September 1981). NBER Working Paper No. w0755, Available at SSRN: https://ssrn.com/abstract=349141

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sheng-Cheng Hu

Academia Sinica - Institute of Economics ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan
(886) 2-2782-2791-x624 (Phone)
(886) 2872-2019 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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