Reexamining the price effects of assumption financing: The case of above-market interest rates

Although previous research addresses the price effects of below-market loan assumptions in housing transactions, no direct evidence exists regarding t he price effects of above-market loan assumptions. This study develops a hy pothesis of strictly nonnegative price effects in assumption financing and empirically documents a positive impact in housing transactions involving a bove-market loan assumptions. Based on a switching regimes regression analy sis of 2,669 single-family house transactions, we find evidence of a signif icant price premium in moderately priced homes involving above-market loan assumptions but no evidence for a financing premium for more expensive home s. The results suggest that the sources of the premium in the moderately pr iced home market are the assuming buyer's motivations to minimize transacti ons costs and to avoid lenders' qualification criteria.