DP8360 House Prices and Credit Constraints: Making Sense of the US Experience
Author(s): | John V Duca, John Muellbauer, Anthony Murphy |
Publication Date: | April 2011 |
Keyword(s): | credit standards, house price to rent ratio, house prices, subprime mortgages |
JEL(s): | C51, C52, E51, G21, R31 |
Programme Areas: | International Macroeconomics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=8360 |
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.