Credit Supply and House Prices: Evidence from Mortgage Market Segmentation

Adelino, Manuel; Schoar, Antoinette; Severino, Felipe

doi:10.2139/ssrn.1787252

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Credit Supply and House Prices: Evidence from Mortgage Market Segmentation

35 Pages Posted: 17 Mar 2011 Last revised: 1 Dec 2022

See all articles by Manuel Adelino

Manuel Adelino

Duke University; Duke Innovation & Entrepreneurship Initiative; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Nova School of Business and Economics

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Felipe Severino

Dartmouth College - Tuck School of Business

There are 2 versions of this paper

Date Written: March 17, 2011

Abstract

We develop a new instrument to analyze how exogenous changes in mortgage rates affect house values. Our instrument combines annual changes in the conforming loan limit (CLL) with the 80% loan-to-value threshold, which is commonly used in the approval of conforming loans. Houses that become eligible for cheaper funding through the CLL increase in value by about $1/sq ft. This estimate implies a local elasticity of house prices to interest rates below 6, a value significantly lower than earlier studies have proposed.

Keywords: credit supply, house prices, jumbo, conforming

JEL Classification: D10, D12, R20

Suggested Citation: Suggested Citation

Adelino, Manuel and Schoar, Antoinette and Severino, Felipe, Credit Supply and House Prices: Evidence from Mortgage Market Segmentation (March 17, 2011). Available at SSRN: https://ssrn.com/abstract=1787252 or http://dx.doi.org/10.2139/ssrn.1787252