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Credit Supply and House Prices: Evidence from Mortgage Market Segmentation

42 Pages Posted: 17 Mar 2011 Last revised: 24 Apr 2015

Manuel Adelino

Duke University; Duke Innovation & Entrepreneurship Initiative; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Antoinette Schoar

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

Felipe Severino

Tuck School of Business at Dartmouth

Multiple version iconThere are 2 versions of this paper

Date Written: February 19, 2014

Abstract

We use exogenous changes in the conforming loan limit to measure the causal effect of lower cost of financing on house prices. Houses that become eligible for cheaper funding through a conforming loan, increase in value by about 1.2 dollars per sqft. This implies a local elasticity of house prices to interest rates below 10, significantly lower than some earlier studies proposed. The results are larger in magnitude in the first half of our sample (1998-2001) when other forms of financing were less ubiquitous. Cheaper credit also has a stronger effect in zip codes with low personal income growth or lower elasticity of housing supply. Overall, lower mortgage rates have modest effects on average house prices, but have a strong impact on particularly constrained households.

Keywords: credit supply, house prices, jumbo, conforming

JEL Classification: D10, D12, R20

Suggested Citation

Adelino, Manuel and Schoar, Antoinette and Severino, Felipe, Credit Supply and House Prices: Evidence from Mortgage Market Segmentation (February 19, 2014). Available at SSRN: https://ssrn.com/abstract=1787252 or http://dx.doi.org/10.2139/ssrn.1787252

Duke Innovation & Entrepreneurship Initiative ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Felipe Severino

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.dartmouth.edu/~fseverino

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