What Drives the Growth of Aggregate Residential Mortgage Debt in the U.S.?

33 Pages Posted: 5 Apr 2006

See all articles by Mo Chaudhury

Mo Chaudhury

McGill University - Desautels Faculty of Management

Date Written: March 22, 2006

Abstract

Using annual data for the 1955-2002 period, this paper examines the importance of fixed income and housing price variables in explaining and predicting the annual growth of Mortgage Debt Outstanding (MDO) or Unpaid Principal Balance (UPB) in the US residential mortgage market. Along with interest rate level and housing price growth, we find default risk premium to be a very important driver of MDO growth. The term premium or yield curve slope is, however, not that consequential for MDO growth. Overall, the fixed income and housing price variables, accompanied by the lagged dependent variable, account for 84% of the contemporaneous variation and 78% of the next year variation in MDO growth.

Keywords: Mortgage Debt, Housing Price, Term Structure, Default Risk Premium

JEL Classification: G21, G12, G28

Suggested Citation

Chaudhury, Mo, What Drives the Growth of Aggregate Residential Mortgage Debt in the U.S.? (March 22, 2006). Available at SSRN: https://ssrn.com/abstract=894863 or http://dx.doi.org/10.2139/ssrn.894863

Mo Chaudhury (Contact Author)

McGill University - Desautels Faculty of Management ( email )

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