Product differentiation and populistic entry strategies in a mortgage market with Bertrand competition

PurposeThe purpose of this paper is to analyse the interaction between a profit maximising mortgagor and a newcomer to a mortgage market with Bertrand competition where the newcomer has a populistic entry strategy and undercuts mortgage market rates. The intention of the paper is to relate the populistic entry strategy to mortgage market characteristics and the strategic market position of both the established mortgagor and the newcomer in question.Design/methodology/approachThe paper analyses a mortgage market by combining the behaviour of a profit maximising mortgagor with that of a newcomer to the mortgage market which has a populistic entry strategy and does not maximise profits. The short-run market solution provides comparative statics on the strategic market position of both the established mortgagor and the newcomer to the mortgage market during the entry phase both related to product differentiation and to price mirroring and undercutting of mortgage rates.FindingsThe model finds a mortgage market solution where a lower mortgage rate helps the newcomer gain a customer base. As the newcomer's strategy to mirror prices makes it unable to pass-through funding cost to its mortgage rate, the strategy is unsustainable over time. The established mortgagor has a strategically beneficial position as the mortgage market rates only relate to its funding cost. Unless the newcomer has a funding cost advantage, the established mortgagor has a higher interest rate margin. Differentiation impacts the newcomers’ interest rate margin positively. If the newcomer lacks a funding cost advantage, there is a critical mirroring rate that ensures it a higher interest rate margin. The higher the newcomers’ own funding cost, the higher is the upper bound for price mirroring, relating market entry to a small undercutting of mortgage rates and a mortgage market with weak competition. The funding cost of the established mortgagor pulls pricing in the opposite direction, allowing for a lower mirroring rate and tougher mortgage market competition during entry.Originality/valueThe paper aims to contribute to the understanding of market equilibrium in the absence of profit maximising behaviour. Framing a mortgage market in terms of a duopoly where a newcomer enters with a populistic entry strategy offering a lower mortgage rate and a mortgage product with a different loan-to-value (LTV) ratio, a novel mortgage market case comes about. The populistic entry strategy produces an augmented reaction curve, crucial for the mortgage market rates.

Analysis of vacant and abandoned properties in the City of Toronto.

The city of Toronto is in the midst of unprecedented development fuelled by low-interest mortgage rates, foreign investment and staggering commute times. Despite this, a small percentage of properties remain vacant or abandoned in Toronto. This paper identifies the types of properties that are vacant and abandoned, assesses the property stock for degree of decay and re-examines the appropriateness of the classification of 'vacant' and 'abandoned'. This research indicates that vacant buildings in Toronto transition to abandonment for reasons that may be different from American cities. Vacancy in Toronto may be more affected by lengthy planning approvals, development financing and issues of site acquisition, more than urban decay or blight. The research further indicates that most vacant and abandoned buildings in Toronto are residential, commercial vacancy is transient by nature and industrial abandonment is found mostly along existing railway corridors.

Analysis of vacant and abandoned properties in the City of Toronto.

The city of Toronto is in the midst of unprecedented development fuelled by low-interest mortgage rates, foreign investment and staggering commute times. Despite this, a small percentage of properties remain vacant or abandoned in Toronto. This paper identifies the types of properties that are vacant and abandoned, assesses the property stock for degree of decay and re-examines the appropriateness of the classification of 'vacant' and 'abandoned'. This research indicates that vacant buildings in Toronto transition to abandonment for reasons that may be different from American cities. Vacancy in Toronto may be more affected by lengthy planning approvals, development financing and issues of site acquisition, more than urban decay or blight. The research further indicates that most vacant and abandoned buildings in Toronto are residential, commercial vacancy is transient by nature and industrial abandonment is found mostly along existing railway corridors.

The Sensitivity of Housing Demand to Financing Conditions: Evidence from a Survey

Measuring the sensitivity of housing demand to mortgage rates and available leverage is challenging because there is generally no exogenous variation in these variables. This paper circumvents this issue by designing a strategic survey in which respondents report their willingness to pay (WTP) for a home under different financing scenarios. Relaxation of down payment constraints or an exogenous increase in nonhousing wealth has large effects on WTP, especially for poorer and more credit-constrained households. However, changing the mortgage rate has only moderate effects on WTP. These findings have implications for theoretical models of house price determination and for policy. (JEL G21, G51, R21, R38)

DO INFLATION, INTEREST RATE AND COST OF RENTING AFFECT THE PRICE OF TERRACE HOUSES IN PENANG?

In Malaysia, the housing ownership is reported to decrease from 85% in 1999 to 72.5% in 2010. This is due to the outstripped increase of house price over the income level and the unstable economic situation which creates unaffordability to own a house for many people. Therefore, the main objective of this study is to examine whether the price of terrace houses in Penang is being affected with fundamental factors such as inflation, interest rates and the cost of renting. This study uses multivariate regression analysis with quarterly data of terrace house prices (HPI terrace house in Penang), inflation (CPI) and interest rate (mortgage rates) from 2009: Q1 to 2016: Q4. Evidently, the cost of renting terrace houses in Penang does not have any impact on the price of terrace houses and the stable movement of cost of renting indicates that the growth of rental rate is at acceptable price for middle income earners.

Hot and cold seasons in Texas housing markets

Purpose This paper aims to use statistical analyses to understand the trends on housing liquidity and pricing by accounting for macroeconomic factors that vary at national level and at metropolitan statistical area level for all metropolitan statistical areas in Texas. In addition, the authors test for seasonality in all the metropolitan statistical areas in Texas. Design/methodology/approach Using publicly available data from Zillow a listing website, the authors conduct an analysis of all housing markets at metropolitan statistical area level in Texas to understand the factors that drive the liquidity and pricing. The authors use two measures for liquidity, namely, time to sell the house and sales to list ratio. The authors also try to understand the decision to lower the price of the listed houses. In addition, the authors conduct a test for seasonality within the year in these housing markets. Findings The analyses conclude that there is a significant impact of listing prices, unemployment rates, 30-year mortgage rates, consumer sentiment and oil price changes on the liquidity of the housing markets and decisions of sellers to adjust the prices down. In addition, the authors provide evidence of the existence of seasonality in most metropolitan statistical areas in Texas both for pricing and volume of transactions. Originality/value This is the first study to look at housing liquidity and pricing trends for about 25 markets in Texas. In addition, the authors provide evidence of the importance of oil prices for the housing markets in Texas metropolitan statistical areas.