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

  • Duca, John V
  • Muellbauer, John
  • Murphy, Anthony

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8360.

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Date of creation: Apr 2011
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Handle: RePEc:cpr:ceprdp:8360
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