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

  • John V. Duca
  • John Muellbauer
  • Anthony Murphy

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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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 121 (2011)
Issue (Month): 552 (05)
Pages: 533-551

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Handle: RePEc:ecj:econjl:v:121:y:2011:i:552:p:533-551
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  1. Sven Rady, 2001. "Housing Market Dynamics: on the Contribution of Income Shocks and Credit Constraints," FMG Discussion Papers dp375, Financial Markets Group.
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  16. Duca, John V., 1996. "Deposit Deregulation and the Sensitivity of Housing," Journal of Housing Economics, Elsevier, vol. 5(3), pages 207-226, September.
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  18. Cunningham, Christopher R. & Engelhardt, Gary V., 2008. "Housing capital-gains taxation and homeowner mobility: Evidence from the Taxpayer Relief Act of 1997," Journal of Urban Economics, Elsevier, vol. 63(3), pages 803-815, May.
  19. W. Scott Frame, 2009. "The 2008 federal intervention to stabilize Fannie Mae and Freddie Mac," Working Paper 2009-13, Federal Reserve Bank of Atlanta.
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