Credit Supply and Housing Speculation

61 Pages Posted: 27 Jul 2018

See all articles by Atif R. Mian

Atif R. Mian

Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

Amir Sufi

University of Chicago - Booth School of Business; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: June 30, 2018

Abstract

Credit supply expansion fuels housing speculation, generating a boom and bust in house prices. U.S. zip codes more exposed to the 2003 acceleration of the private label mortgage securitization (PLS) market witnessed a sudden and large increase in mortgage origanizations and house prices from 2003 to 2006, followed by a collapse in house prices from 2006 to 2010. During the boom, cities with higher PLS-market exposure were more likely to see a large increase in house prices despite substantial new construction; these cities experienced a severe bust after 2006. Most of the marginal home-buyers brought into the housing market by the acceleration of the PLS market were short-term buyers or "flippers." These marginal buyers had lower credit scores and higher ex post default rates. Speculation by such home-buyers contributed to a large rise in transaction volume from 2003 to 2006, and helped trigger the mortgage default crisis in 2007.

Keywords: speculation, house prices, bubbles, subprime, credit supply, mortgage default crisis

JEL Classification: G01, G12, G02

Suggested Citation

Mian, Atif R. and Sufi, Amir, Credit Supply and Housing Speculation (June 30, 2018). Available at SSRN: https://ssrn.com/abstract=3209564 or http://dx.doi.org/10.2139/ssrn.3209564

Atif R. Mian

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Amir Sufi (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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