Abstract
Although previous research addresses the price effects of below-market loan assumptions in housing transactions, no evidence exists regarding the price effects of above-market loan assumptions. This study develops a hypothesis of strictly non-negative price effects in assumption financing and empirically documents a positive impact in housing transactions involving above-market loan assumptions. Based on a switching regimes regression analysis of 2594 single-family house transactions, we find evidence of a significant price premium in moderately priced homes involving above-market loan assumptions, but no evidence for a financing premium for more expensive homes. The results suggest that the source of the premium in the moderately priced home market is the assuming buyer's desire to avoid lenders' qualification criteria.
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