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Discussion Paper Details

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

Author(s): John V Duca, John Muellbauer and Anthony Murphy

Publication Date: April 2011

Keyword(s): credit standards, house price to rent ratio, house prices and subprime mortgages

Programme Area(s): International Macroeconomics

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

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Bibliographic Reference

Duca, J, Muellbauer, J and Murphy, A. 2011. 'House Prices and Credit Constraints: Making Sense of the US Experience'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8360