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Shifting credit standards and the boom and bust in U.S. house prices

  • John V. Duca
  • John N. Muellbauer
  • Anthony Murphy

The U.S. house price boom has been linked to an unsustainable easing of mortgage credit standards. However, standard time series models of U.S. house prices omit credit constraints and perform poorly in the 2000s. We incorporate data on credit constraints for first-time buyers into a model of U.S. house prices based on the (inverted) demand for housing services. The model yields not only a stable long-run cointegrating relationship, a reasonable speed of adjustment, plausible income and price elasticities and an improved fit, but also sensible estimates of tax credit effects and the possible bottom in real house prices.

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Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 1104.

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Date of creation: 2011
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Handle: RePEc:fip:feddwp:1104
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  25. Danielle DiMartino & John V. Duca, 2007. "The rise and fall of subprime mortgages," Economic Letter, Federal Reserve Bank of Dallas, vol. 2(nov).
  26. Gabriel, Stuart A. & Rosenthal, Stuart S., 2010. "Do the GSEs expand the supply of mortgage credit? New evidence of crowd out in the secondary mortgage market," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 975-986, December.
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  28. W. Scott Frame, 2009. "The 2008 federal intervention to stabilize Fannie Mae and Freddie Mac," FRB Atlanta Working Paper 2009-13, Federal Reserve Bank of Atlanta.
  29. Joseph Tracy & Henry Schneider & Sewin Chan, 1999. "Are stocks overtaking real estate in household portfolios?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Apr).
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