Integration of the Mortgage Market into the National Capital Markets: 1963–1993

Over the period 1963–1993, many of the institutions of the secondary mortgage market were formed and the thrifts were deregulated. These changes were expected to make the mortgage market more closely related to the national capital markets. This study uses two methods to test the impact of these changes. First, cointegration analysis tests this relationship over the entire period and in three subperiods (1963–1968, 1969–1979, and 1980–1993). We selected the subperiods to reflect the changes in the mortgage market. Unlike prior studies, we find the mortgage market to have been cointegrated with the national markets over the entire period as well as in each of the subperiods. Estimates of the error correction model show a change in the short-run dynamics between the two markets. Second, quality control charts and regression analysis are used to examine changes in the geographic variation in local mortgage rates. If the local markets became more integrated into the national market, the geographic variation in the rates should decrease. The results are consistent with this hypothesis.