Credit Supply and the Price of Housing

30 Pages Posted: 2 Apr 2010  

Jean M. Imbs

Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Giovanni Favara

HEC University of Lausanne; Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne; International Monetary Fund (IMF)

Multiple version iconThere are 3 versions of this paper

Date Written: February, 18 2010

Abstract

We show that since 1994, branching deregulations in the U.S have signi…cantly affected the supply of mortgage credit, and ultimately house prices. With deregulation, the number and volume of originated mortgage loans increase, while denial rates fall. But the deregulation has no effect on a placebo sample, formed of mortgage companies that should not be affected by the regulatory change. This sharpens the causal interpretation of our results. Deregulation acts to relax access to mortgage credit, and pushes the demand for house ownership outwards. Interestingly, the fraction of securitized mortgage loans remains unchanged through the process. We fi…nd evidence house prices rise with branching deregulation, and particularly in Metropolitan Areas where construction is inelastic for topographic reasons. We document these results in a large sample of counties across the U.S. We also focus on a reduced cross-section formed by counties on each side of a state border, where a regression discontinuity approach is possible. Our conclusions are strengthened.

Suggested Citation

Imbs, Jean M. and Favara, Giovanni, Credit Supply and the Price of Housing (February, 18 2010). Available at SSRN: https://ssrn.com/abstract=1555404 or http://dx.doi.org/10.2139/ssrn.1555404

Jean M. Imbs

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Giovanni Favara (Contact Author)

HEC University of Lausanne ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

HOME PAGE: http://www.hec.unil.ch/gfavara/

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

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