Daniel P. Murphy

Category: Working Papers

  • The Effect of Mortgage Rates on Neighborhood Housing Costs

    with DeShawn Vaughan
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    Abstract

    We estimate zip-level “housing cost sensitivities” (HCS)—the percent change in local home prices or rents per 1% increase in national home prices caused by Ben-David et a. (2024) mortgage-rate shocks. Using Zillow home-value and rent indices for over 13,000 zip codes, we find wide heterogeneity. Across the interquartile range, local home prices rise between 0.3% to 2.0%, while rents range from -1.5% to $1.1%. We find the HCS are strongly regressive: lower-income zips exhibit substantially larger responses for both prices and rents. Zip-level home-price HCS are highly correlated with the city-level inverse supply elasticity of Guren et al. (2021), yet meaningful unexplained variation remains. Beyond supply constraints, we find that demand amplification (natural amenities), land-cost pass-through, and housing-market liquidity all shape HCS. Our results quantify where mortgage-rate movements most strongly transmit into local housing costs and clarify the mechanisms underlying that heterogeneity.

  • Work From Home and the Post-COVID Spending Surge

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    Abstract

    U.S. personal saving rates have remained below pre-pandemic levels. This paper links the sustained increase in consumption to the rise of working from home (WFH). Using PSID 2019–2023 data and an industry-based instrument for WFH, I find that households induced to WFH raised expenditure by more than \$7,000 on average, holding income and wealth constant. Spending rose not only among movers but also among non-movers, consistent with a persistent shift in preferences toward housing-complementary consumption. The estimates imply that WFH reduced the aggregate saving rate by 1.2 percentage points, and they suggest that remote work structurally increased demand for housing-related consumption, contributing to the post-pandemic spending boom.

  • The Heterogeneous Reactions of Household Debt to Income Shocks

    with Nikolaos Koutinidis and Elena Loutskina
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    Abstract

    We study how household debt portfolios-aggregated at the ZIP code level-respond to local income shocks in the United States. We implement two separate identification strategies: (i) a Bartik-style instrument that shifts local earnings via national industry trends, and (ii) a novel instrument utilizing the timing and location of shale oil and gas well discoveries. Across both designs, positive income shocks are, on average, associated with deleveraging. This average, however, masks a sharp bifurcation in financial behavior. Deleveraging in total credit is driven by financially healthier households-those with higher credit scores, higher incomes, or lower leverage-who restrain the growth of credit-card and auto debt. In contrast, financially vulnerable households often treat the windfall as a gateway to new auto credit while still deleveraging credit-card and typically mortgage debt. Looking at mixed-profile households, we find strong mortgage leveraging among households with high income and high debt or low credit scores. These results show that the same income shock can trigger balance-sheet repair for some households and additional leverage for others-varying by both borrower type and debt category-underscoring substantial underlying heterogeneity and highlighting barriers to broad-based financial stability.

  • Home Size, Residential Density, and Aggregate Demand

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    Abstract

    This paper documents that smaller homes and denser neighborhoods are associated with higher household saving rates. This relationship is apparent within and across U.S. households, across countries, and over time in the U.S. The micro data indicate the importance of complementarity between housing and non-housing consumption. Incorporating complementarity into a macroeconomic model implies that denser countries with smaller homes have higher household savings rates, a lower natural rate of interest, and lower sensitivity of non-housing consumption to monetary policy. Furthermore, growth in the non-housing sector alongside stable home sizes is associated with a declining natural rate of interest. High density and small homes may contribute to Japan’s lost decade and persistent stagnation.