Mortgage Market Institutions and Housing Market Outcomes: A Dynamic General Equilibrium Approach
I develop a dynamic general equilibrium model of housing and mortgage markets where housing market outcomes are aected by the types of mortgages contracts available to borrowers. Supply is created in the housing market by existing owners who have to move, and demand is created by potential buyers entering the market. Buyers have limited wealth and must borrow to purchase homes. Mortgages of various types are provided by risk-neutral and competitive lenders. Whether or not an entrant decides to buy a home is determined by both house prices and the types of mortgage contracts available. Agents are forward looking, and house prices, mortgage interest rates, and contract choice are fully endogenized. The model is estimated using data from Los Angeles from 2003 to 2010, and is used to study counterfactual questions about mortgage design and availability. Specifically, I study the impact of the availability of non-agency mortgages and of mortgages designed to share housing equity between homeowner and lender.