Shifting Credit Standards and the Boom and Bust in US House Prices

33 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

Date Written: April 2011

Abstract

The U.S. house price boom has been linked to an unsustainable easing of mortgage credit standards. However, standard time series models of US house prices omit credit constraints and perform poorly in the 2000's. We incorporate data on credit constraints for first time buyers into a model of US house prices based on the (inverted) demand for housing services. The model yields not only a stable long-run cointegrating relationship, a reasonable speed of adjustment, plausible income and price elasticities and an improved fit, but also sensible estimates of tax credit effects and the possible bottom in real house prices.

Keywords: credit standards, house prices, subprime mortgages

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

Suggested Citation

Duca, John V. and Muellbauer, John and Murphy, Anthony, Shifting Credit Standards and the Boom and Bust in US House Prices (April 2011). CEPR Discussion Paper No. DP8361, Available at SSRN: https://ssrn.com/abstract=1830979

John V. Duca (Contact Author)

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

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
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Oberlin College

Oberlin, OH 44074
United States

John Muellbauer

University of Oxford - Department of Economics ( email )

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Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 278 583 (Phone)
+44 1865 278 557 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Anthony Murphy

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

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