Supply Restrictions, Subprime Lending and Regional US House Prices

42 Pages Posted: 4 May 2015  

André K. Anundsen

University of Oslo; Norges Bank

Christian Heebøll

Department for Convergence and Competitiveness - European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: December 19, 2014

Abstract

With regard to the recent US house price cycle, we analyze how the interaction between housing supply restrictions, mortgage credit constraints and a price-toprice feedback loop affects house price volatility. Considering 247 Metropolitan Statistical Areas, we estimate a simultaneous boom-bust system for house prices, housing supply and subprime lending. The model accounts for regional differences in supply elasticities that are determined by local variations in topographical and regulatory supply restrictions. Our results suggest that tighter supply restrictions lead to both a larger house price boom and bust, and that this is due to supply restricted areas being significantly more exposed to a financial accelerator effect and a price-to-price expectation mechanism. We further find that the presence of endogenous price acceleration mechanisms contribute to dilute the positive relationship between the total quantity response and the supply elasticity.

Keywords: Regional Boom-Bust Cycles; Housing Supply Restrictions; Subprime Lending; Financial Accelerator

JEL Classification: E32; E44; G21

Suggested Citation

Anundsen, André K. and Heebøll, Christian, Supply Restrictions, Subprime Lending and Regional US House Prices (December 19, 2014). Norges Bank Working Paper 18 | 2014. Available at SSRN: https://ssrn.com/abstract=2602447 or http://dx.doi.org/10.2139/ssrn.2602447

Andre Kallak Anundsen (Contact Author)

University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, 0130
Norway

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Christian Heebøll

Department for Convergence and Competitiveness - European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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