Adjustable-rate mortgages, household mobility, and homeownership: A simulation study

Stuart A. Gabriel, Stuart S. Rosenthal

Research output: Contribution to journalArticle

4 Scopus citations

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 homeownership 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.

Original languageEnglish (US)
Pages (from-to)29-41
Number of pages13
JournalThe Journal of Real Estate Finance and Economics
Volume7
Issue number1
DOIs
StatePublished - Jul 1 1993
Externally publishedYes

Keywords

  • ARMs
  • Markov
  • housing tenure choice
  • mortgage finance

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Urban Studies

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