Here, one must examine the value distribution of recently sold houses and calculate

which households satisfy both payments and assets conditions.  That is, for each

household calculate (using data from borrower and household interview surveys) :

a l V

y

&

r

min

C

(21)

k

p

F

&

(1

&

l

)

V

C

min

a

(22)

Where

 V

min

is the observed  minimum value  dwelling recently purchased, it is

probably best to use dwellings at the fifth to twentieth percentile as better reflecting the

average incremental unit.  C

p

 and C  are excess income for payments and excess assets

a

for down payments, respectively.  If households meet payments and down payment

requirements, it is then assumed that their demand for housing will become  effective

demand  based on mortgage lending.

For households with 

C

p

>

 0 and 

C

a

$

$

0, calculate 

I*

 (from the demand function

estimated for recent movers) and 

M*

 =

 lV*

.  Potential mortgage originations will be equal

to the number of households meeting the two conditions.  The potential mortgage demand

will be 

3

lV

i

* for households meeting the conditions.

A comparison of the magnitudes of housing demand and mortgage demand from

the calculations from subsections C and D above can be revealing concerning the degree

to which effective demand for credit is limited by (1) limited mobility of potential movers (in

part a function of low user costs and/or higher quality preexisting housing); (2) income and

assets constraints on borrowing; and (3) supply restrictions concerning available housing

types and values.

Note that in subsections C and D a number of  what if  experiments can be

conducted.  In C, transition probabilities can be modified, either parametrically without

reference to empirical relationships to policy and other variables or based on empirical

relationships such as those estimated in Section 4.1 above.  In D, varying assumptions can

be made concerning interest rates, lending terms, payments ratios (

I

), loan to value ratios,

and the distribution of housing values offered.  In the last connection, a more realistic

assumption is made than that posed in D; i.e., that households will purchase if:

a lV

y

&

r

min

> 0

(23)

R

and

I 16