Missing Home-Buyers and Rent Inflation: The Role of Interest Rates and Mortgage Underwriting Standards

Volume/Issue: Volume 2025 Issue 090

Publication date: May 2025

ISBN: 9798229008044

$20.00

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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Economics- Macroeconomics , Mortgages , Homeownership , Monetary Policy , Rents , Housing prices , Income , Housing , Mortgages

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Summary

I study how monetary policy interacts with mortgage underwriting standards in shaping tenure decisions and rental market equilibria. Using property-level data from the American Housing Survey, I show that the increase in mortgage rates between 2021 and 2023 pushed many potential first-time home-buyers above FHA mortgage payment-to-income limits, restricting their access to home-ownership. This resulted in additional demand pressure on local rental markets, contributing to rent price inflation in 2023. Rentals located in cities with larger shares of constrained first-time buyers experienced steeper price growth, controlling for unit characteristics and contemporaneous economic developments. Rent inflation was more pronounced in smaller units occupied by lower-income renters, underscoring the potential for second-round distributional effects of monetary policy.