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

Listed author(s):
  • 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. Meese Richard & Wallace Nancy, 1994. "Testing the Present Value Relation for Housing Prices: Should I Leave My House in San Francisco?," Journal of Urban Economics, Elsevier, vol. 35(3), pages 245-266, May.
  2. Duca, John V. & Wu, Tao, 2008. "Regulation and the neo-Wicksellian approach to monetary policy," Working Papers 0807, Federal Reserve Bank of Dallas.
  3. Charles P. Himmelberg & Christopher J. Mayer & Todd Sinai, 2005. "Assessing high house prices: bubbles, fundamentals, and misperceptions," Staff Reports 218, Federal Reserve Bank of New York.
  4. Gavin Cameron & John Muellbauer & Anthony Murphy, 2006. "Was There A British House Price Bubble? Evidence From A Regional Panel," ERES eres2006_150, European Real Estate Society (ERES).
  5. Danielle DiMartino & John V. Duca, 2007. "The rise and fall of subprime mortgages," Economic Letter, Federal Reserve Bank of Dallas, vol. 2(nov), pages -.
  6. Morris A. Davis & Jonathan Heathcote, 2004. "The price and quantity of residential land in the United States," Finance and Economics Discussion Series 2004-37, Board of Governors of the Federal Reserve System (U.S.).
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  8. Duca, John V., 1996. "Deposit Deregulation and the Sensitivity of Housing," Journal of Housing Economics, Elsevier, vol. 5(3), pages 207-226, September.
  9. John V. Duca & John Muellbauer & Anthony Murphy, 2010. "Housing Markets and the Financial Crisis of 2007-2009: Lessons for the Future," SERC Discussion Papers 0049, Spatial Economics Research Centre, LSE.
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  18. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, December.
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