Asset Markets, Credit Markets, and Inequality: Distributional Changes in Housing, 1970-2016

This paper tests the extent to which credit market shocks affect different quantiles in the housing price distribution. We use the new "recentered influence function" methodology to recover the unconditional distribution of housing prices in response to (1) unexpected monetary policy decisions and (2) changes in credit supply. We find that tight monetary policy leads to an increase in housing prices across most of the distribution, with larger increases for higher-priced homes, resulting in an increase in price dispersion. In contrast, increases in loan volume lead to higher home prices across the entire distribution, with the largest increases for the mid-priced homes. Importantly, we show that the credit supply effect changes during the 2000-2006 "bubble" period, leading to higher prices at the bottom of the distribution. These price effects are large and significant -- and can explain much of the change in wealth inequality over time. More generally, they challenge the common assumption that policies can be properly evaluated by average effects and that housing affordability can be sufficiently summarized by median statistics.