Do loss profiles on the mortgage market resonate with changes in macro economic prospects, business cycle movements or policy measures?
Over the years we see that mortgages with less risk of loss, due to more asset accumulation, have become more popular. We examine if this popularity resonates with macroeconomic features, business cycle movements and policy measures. Using detailed data from an important player in the Dutch mortgage market, covering 1990 to 2012, we seek to elicit the time series patterns of the loss profiles of customers. Over time we indeed find changes in loss profiles. The theoretical perspective used to situate this change in profile is prospect theory. Key findings of prospect theory are: interaction between framing of a decision, the attitude towards loss, and loss-averse behavior. Next, we find only very limited impact of changes in the macro economic situation on the loss profiles, that is, business cycle movements on the housing markets do not matter, nor do general business cycle movements. In contrast, we find that some changes in loss profiles are related to tax policy measures. Hence, we conclude that if policy makers want to stimulate loss-averse behavior through asset accumulation, they should actively encourage it.
|Keywords||mortgage market, macroeconomic policy, business cycles|
|JEL||Financial Economics: General (jel G0), Government Policy and Regulation (jel G18), Banks; Other Depository Institutions; Mortgages (jel G21), Housing Supply and Markets (jel R31), Business Fluctuations; Cycles (jel E32), International Economics (jel F)|
|Series||Econometric Institute Research Papers|
|Note||Econometric Institute Report 2014-08|
Noordegraaf-Eelens, L.H.J, & Franses, Ph.H.B.F. (2014). Do loss profiles on the mortgage market resonate with changes in macro economic prospects, business cycle movements or policy measures?. Econometric Institute Research Papers. Retrieved from http://hdl.handle.net/1765/51317