IMF Working Papers

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

By Alessia De Stefani

May 9, 2025

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Format: Chicago

Alessia De Stefani. "Missing Home-Buyers and Rent Inflation: The Role of Interest Rates and Mortgage Underwriting Standards", IMF Working Papers 2025, 090 (2025), accessed May 12, 2025, https://doi.org/10.5089/9798229008044.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Financial institutions, Housing, Housing prices, Income, Mortgages, National accounts, Prices

Keywords: Homeownership, Housing, Housing prices, Income, Monetary Policy, Mortgages, Mortgages, Rents

Publication Details

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