House Prices and Credit Constraints: Making Sense of the US Experience

34 Pages Posted: 4 May 2011

See all articles by John V. Duca

John V. Duca

Federal Reserve Banks - Federal Reserve Bank of Dallas; Oberlin College

John Muellbauer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Anthony Murphy

Federal Reserve Banks - Federal Reserve Bank of Dallas

Multiple version iconThere are 2 versions of this paper

Date Written: April 2011

Abstract

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.

Keywords: credit standards, house price to rent ratio, house prices, subprime mortgages

JEL Classification: C51, C52, E51, G21, R31

Suggested Citation

Duca, John V. and Muellbauer, John and Murphy, Anthony, House Prices and Credit Constraints: Making Sense of the US Experience (April 2011). CEPR Discussion Paper No. DP8360, Available at SSRN: https://ssrn.com/abstract=1830978

John V. Duca (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

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John Muellbauer

University of Oxford - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Anthony Murphy

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

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