Quantitative Advances in Housing and Mortgage Markets
Paper Session
Saturday, Jan. 3, 2026 8:00 AM - 10:00 AM (EST)
- Chair: Stijn Van Nieuwerburgh, Columbia University
Reverse Mortgages, Housing, and Consumption: An Equilibrium Approach
Abstract
Reverse Mortgages (RMs) enable eligible homeowners 62 years and older access to the liquidity of their home without them moving out or repaying before loan termination when the borrowers die or move to long-term care facilities. We incorporate RMs into a quantitative equilibrium life-cycle model to assess their impacts on household decisions, the mortgage, and the housing market. We show that the volatility of consumption growth decreases for RM borrowers. Additionally, introducing RMs enhances the house's perceived value to households, making homeownership a more financially attractive option and stimulating housing demand. These effects increase overall household welfare in our model, highlighting the positive impact of RMs.Household Finance with House Value Misestimation
Abstract
We show that households systematically overvalue or undervalue their houses and this has a significant effect on their stock holdings, consumption, and housing choices. We isolate exogenous variation in house value, mortgage debt, and misestimation by using differences across housing markets in house prices, housing supply elasticities, housing sales counts, and internet searches as instruments. We find that a $50,000 increase in house overvaluation results, on average, in a 0.9 to 1.7% percent decrease in the share of risky stockholdings, a 2.3-4.4% percent increase in the share of consumption, and a 1.7-2.2% increase in the share of risk-free asset holdings over liquid wealth.Mortgage Structure, Financial Stability, and Risk Sharing
Abstract
Mortgage structure matters not only for monetary policy transmission, but also for financial stability. In an adjustable-rate mortgage (ARM) regime, interest rate rises cause higher default rates due to increases in mortgage payments. In a fixed-rate mortgage (FRM) regime, households are protected, but banks are potentially more exposed to rate rises. To evaluate these competing mechanisms under different mortgage regimes, we build a quantitative model with flexible mortgage contract structures, borrowers, and an intermediary sector. Our approach captures borrowers’ endogenous default decisions and intermediaries’ equilibrium pricing effects on mortgage rates and risk premia, reflecting the interaction between interest rate and credit risks, and intermediary net worth. We find that financial stability risks are “U-shaped” in mortgage structure: while ARM payments are more sensitive to interest rates, defaults happen in states when intermediary net worth is high, resulting in lower risk premia in constrained states of the world compared to the benchmark FRM economy. As a result, an intermediate mortgage fixation length minimizes the volatility of intermediary net worth and improves the sharing of aggregate risks. Our findings have implications for mortgage design, macroprudential, and monetary policy.JEL Classifications
- G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages