The Effect of Housing Prices of Changes in Mortgage Rates and Taxes

New paper, August 2013

Abstract

This paper presents some simple calculations of the effect on housing prices of temporary changes in the one-year mortgage rate and permanent changes in short and long mortgage rates, the capital-income tax, the effective property and wealth tax, the capital-gains tax, the expected growth rate of the value of housing services, and the CPI inflation rate. A new element in the calculation is to take the capital-gains tax on housing into account. The semi-elasticity of housing prices with respect to temporary changes in the one-year mortgage rates is quite small. This semi-elasticity is less sensitive to the assumptions about the parameters. The semi-elasticities of permanent changes in mortgage rates, taxes and the tax-deductibility of mortgage rates are substantial. These semi-elasticities are more sensitive to the assumptions about the parameters.

PDF