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House prices and credit constraints: making sense of the U.S. experience

  • Duca, John V.

    (Federal Reserve Bank of Dallas)

  • Muellbauer, John N.
  • Murphy, Anthony

    ()

    (Federal Reserve Bank of Dallas)

Most U.S. house price models break down in the mid-2000s due to the omission of exogenous changes in mortgage credit supply (associated with the subprime mortgage boom) from house price-to-rent ratio and inverted housing demand models. Previous models lack data on credit constraints facing first-time homebuyers. 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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File URL: http://www.dallasfed.org/assets/documents/research/papers/2011/wp1103.pdf
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Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 1103.

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Length: 29 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:fip:feddwp:1103
Note: Published as: Duca, John V., John Muellbauer and Anthony Murphy (2011), "House Prices and Credit Constraints: Making Sense of the U.S. Experience," The Economic Journal 121 (552): 533-551.
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