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

19 Pages Posted: 20 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)

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Date Written: May 2011

Abstract

Most US house price models break down in the mid-2000s, 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.

Suggested Citation

Duca, John V. and Muellbauer, John, House Prices and Credit Constraints: Making Sense of the US Experience (May 2011). The Economic Journal, Vol. 121, Issue 552, pp. 533-551, 2011, Available at SSRN: https://ssrn.com/abstract=1840213 or http://dx.doi.org/10.1111/j.1468-0297.2011.02424.x

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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