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Title: Credit Supply and the Housing Boom

Author(s): Alejandro Justiniano, Giorgio E Primiceri and Andrea Tambalotti

Publication Date: January 2015

Keyword(s): collateral constraints, house prices, housing and credit boom and leverage restrictions

Programme Area(s): Financial Economics and International Macroeconomics

Abstract: The housing boom that preceded the Great Recession was due to an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices and household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are difficult to reconcile with the popular view that attributes the housing boom to looser borrowing constraints associated with lower collateral requirements. In fact, a slackening of collateral constraints at the peak of the lending cycle triggers a fall in home prices in our framework, providing a novel perspective on the possible origins of the bust.

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Bibliographic Reference

Justiniano, A, Primiceri, G and Tambalotti, A. 2015. 'Credit Supply and the Housing Boom'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10358