House Prices and Credit Constraints: Making Sense of the US Experience
John V. Duca
Federal Reserve Bank of Dallas
University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)
affiliation not provided to SSRN
CEPR Discussion Paper No. DP8360
Most US house price models break down in the mid-2,000s, due to the omission of exogenous changes in mortgage credit supply (associated with the sub-prime mortgage boom) from house price-to-rent ratio and inverted housing demand models. Previous models lack data on credit constraints facing first-time home-buyers. Incorporating a measure of credit conditions - the cyclically adjusted loan-to-value ratio for first time buyers - into house price to rent ratio models yields stable long-run relationships, more precisely estimated effects, reasonable speeds of adjustment and improved model fits.
Number of Pages in PDF File: 34
Keywords: credit standards, house price to rent ratio, house prices, subprime mortgages
JEL Classification: C51, C52, E51, G21, R31working papers series
Date posted: May 4, 2011
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