The Feasibility of Estimating the Demand

for Residential Mortgage Credit in Poland

11

!

The demand for housing is especially pronounced because of the major U.S.

housing subsidy, which makes mortgage interest payments a tax deduction.  (As

an aside, economists have debated this subsidy for years, and many feel it

causes over  investment in housing).

!

A home mortgage represents the major proportion of household indebtedness

for most households. In fact, as a proportion of total debt, mortgage debt has

increased and other consumer debt has decreased as households use  home

equity  loans to finance a variety of goods and services.

!

At the same time, the equity in their home is by far the major asset for most

households.

!

In fact, borrowing against the equity in the home now supports all manner of

activities, from home repair to purchase of luxury items to consumption of goods

and services by the elderly via reverse annuity mortgages (RAMs).

9

#

The Goals of Demand Estimation in the United States.

  Given this profile,

homeownership and the demand for mortgage credit are literally big business in the United

States. Since housing investment is such an important component of GDP, macroeconomic

models of housing aggregates play a very important role in models of GDP, forecasting,

and analyses of economic trends. The crucial indicators of long term demand the income

elasticity of demand for housing and the price elasticity of demand for housing are key

components of macroeconomic and forecasting models.  Estimates of indicators such as

housing starts are also of key importance to the business cycle, as well as to the macro

economy in the long term, and thus are important to fiscal and monetary policy.

Mortgage credit is the key component of consumer credit. Concentration of

mortgage lending in savings and loan associations is now a thing of the past mortgage

lending is important to the portfolios of all types of financial and nonfinancial institutions,

including mortgage banks, savings banks, commercial banks, and secondary market

institutions such as Fannie Mae, Freddie Mac, and Ginnie Mae.  In fact, the ascendence

of the secondary market, and the importance of mortgage backed securities (MBS), has

placed great emphasis on microeconomic analyses of mortgage portfolios the

probabilities of prepayment and default are instrumental in the risk analysis and pricing of

MBS.  Basically, the determinants of demand for housing and mortgage credit are

important across the board to government policy makers, banks, primary and academics,

9

See Sally Merrill,  Home Equity and the Elderly  and  Potential Beneficiaries from Reverse Annuity

Mortgage Products for Elderly Homeowners: An Analysis of American Housing Survey Data.    See also Jozsef

Heged s and Katalin Zsamboki,  the Transformation of the Housing Finance Sector: 1989 1009: Macroecnomic

Considerations,  which describes the Reverse Mortgage Program for is being operated by the Budapest City Estate

Co., and which is planned to become a national program with government support.