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Searching the Mortgage Market: An Estimated Consumer Search Model of the Swedish Mortgage Market
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
2017 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

This paper sets out to explain the observed mortgage rate dispersion in the Swedish mortgage rate market through a consumer search model. Utilizing a structural approach that only requires average mortgage rate data, the search cost distribution for consumers are estimated for the period May 2016 to February 2017. Examining the different contract lengths for mortgages, the three-months and one-year mortgage rates do not fit the consumer search cost framework but the two- tree- and five-year fixed mortgage contracts fits well. The results indicate that there is considerable search cost in the mortgage market and that the low number of searches yields considerable market power to the banks, in the sense of being able to price mortgages above marginal cost. Further the fitted model for the five-year fixed mortgage rate is used to simulate the effects from a cost increase for the banking sector. The results indicates that due to the high consumer search costs present in the market, the mortgages facing the consumers will increase substantially to modest cost increases. A decrease in the consumers search costs are also simulated, which results in lower expected mortgage rates. This paper adds to the literature through the use of average monthly data and a search cost perspective to the question of why there are dispersions of mortgage rates in the Swedish mortgage market.

Place, publisher, year, edition, pages
2017.
Keyword [en]
Search Cost, Mortgage Market, Price Dispersion
National Category
Economics
Identifiers
URN: urn:nbn:se:umu:diva-137564OAI: oai:DiVA.org:umu-137564DiVA: diva2:1119897
Available from: 2017-07-05 Created: 2017-07-05 Last updated: 2017-07-05

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CiteExportLink to record
Permanent link

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Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf