Author(s): Joshua Bosshardt (FHFA), Marco Di Maggio (Harvard University), Ali Kakhbod (University of California, Berkeley), and Amir Kermani (University of California, Berkeley)
*Revised November 2023
Abstract: This paper studies how tightening monetary policy transmits to the economy through the mortgage market and sheds new light on the distributional consequences at both individual and regional levels. We find that credit supply factors, specifically restrictions on the debt-to-income (DTI) ratio, account for most of the decline in mortgages. These effects are even more pronounced for minority and middle-income borrowers, who find themselves excluded from the credit market. Additionally, regions with historically high DTI ratios exhibit greater reductions in mortgage originations, house prices, and consumption.
A revised version of this paper has been accepted for publication and is forthcoming in the Journal of Financial Economics.