Spending Response to a Predictable Increase in Mortgage Repayments: Evidence from Expiring Interest-Only Loans (with Henrik Yde Andersen and Stine Ludvig Bech), 2024, The Review of Economics and Statistics, 106 (1), Pages 277-285
We study how homeowners' consumption responds to a negative and anticipated disposable income shock: the beginning of the amortization period on interest-only mortgages. We identify spending behavior through an event study approach, by matching loan-level data that covers the universe of Danish mortgages to detailed administrative registries on borrowers. In response to an average increase in installments worth 9% of income, consumption drops by 3% of income, when amortization begins. The reduction in expenditure is persistent. Borrowers who fail to smooth consumption are highly leveraged and likely to be denied a new interest-only loan, upon expiration.
House Price History, Biased Expectations and Credit Cycles: the Role of Housing Investors, 2021, Real Estate Economics, 49: 1238– 1266
Using the Michigan Survey, I show that consumers' house price expectations depend upon the recent history of house price developments in their city of residence. Forecast errors are predictable: people systematically underestimate momentum and neglect mean reversion, remaining over-optimistic for several quarters after a prolonged trend of house price growth, and vice versa. Housing appreciation also increases the share of consumers who believe that real estate is a good investment. Combining loan-level data from Freddie Mac to regional measures of housing sentiment, I show that an exogenous shift in house price expectations leads to an increase in leverage on new mortgage originations. The effect is concentrated on investment properties and among prime borrowers in nonrecourse states.
Debt, Inequality and House Prices: Explaining the Dynamics of Household Borrowing Prior to the Great Recession, 2020, Journal of Housing Economics, 47: 101601
Was the growth in income inequality a direct driver of the growth in US household debt levels ahead of the 2007–2008 financial crisis? I study the link between income inequality and US households’ consumption and saving decisions, by exploiting multiple microdata sources and constructing measures of geographical variation in top incomes over time. I show that the relationship between consumption and saving rates of low and middle-income American households appears to be strongly mediated by the role of homeownership and rising house prices. The consumption response to changes in top incomes is insignificant throughout this decade, but is significantly higher for homeowners than for renters. Homeowners also accumulate more debt in response to a change in top incomes, albeit exclusively in the form of mortgages. Furthermore, the concentration of income in the top two deciles of the distribution is positively correlated with the growth in values of owner occupied houses. These results indicate that the cost, wealth and collateral effects affecting homeowners living in high-inequality areas may provide an alternative explanation for the link between rising income inequality and the growth in household leverage, insofar explained on the basis of a consumption emulation mechanism.
Beliefs and Risk Taking (with Kaspar Zimmermann), 2022, in Leveraged: The New Economics of Debt and Financial Fragility, Chicago University Press
Presented at: Private Debt Initiative (2019); Video
Using property-level data from the American Housing Survey (AHS), I document a novel channel through which rising mortgage rates fuel rent inflation. A regression-discontinuity design around the Federal Housing Finance (FHA) mortgage payment-to-income (MTI) threshold, combined with counterfactual MTI simulations show that the surge in mortgage rates between 2022 and 2023 pushed a substantial mass of prospective first-time buyers above common mortgage underwriting limits, reducing renter-to-owner transitions. Exploiting city-level variation in the shares of constrained first-time buyers combined with unit-level data on (hedonic) rent price changes, I show that this shift resulted in a reallocation of shelter demand into the rental sector, materially contributing to 2023 rent inflation. These effects were more pronounced in smaller units and among lower-income renters—highlighting an important distributional dimension of monetary tightening.
Upcoming presentations: 2026 AEA meetings, Philadelphia
Long-Term Debt and Short-Term Rates: Fixed Rate Mortgages and Monetary Transmission (with Rui C.Mano) [IMF WP version]
(R&R Journal of Money, Credit and Banking)
We study the two-way relationship between fixed-rate mortgages (FRMs) and monetary policy in a panel of up to 35 countries observed over the last two decades. The dataset includes quarterly information on the composition of mortgage flows and stocks by type of rate-fixation and monetary policy shocks cleaned of information effects. Using instrumental-variable local projections, we show that FRMs induce both path- and state-dependency in monetary transmission. Changes in policy rates shape mortgage choice, increasing (decreasing) the share of FRMs during easing (tightening) cycles. Over time, this mechanism alters the composition of the outstanding mortgage stock which, in turn, affects the central bank’s ability to stabilize the economy ex-post. A greater (lower) prevalence of FRMs weakens (strengthens) monetary policy transmission to real private consumption and GDP.
Presented at: Bank of Finland-CEPR Conference, Frontiers in Monetary Economics in the 21st Century
Dormant papers
Real Effects of Relaxing Financial Constraints for Homeowners: Evidence from Danish Firms (with Julia Moertel), 2020