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Credit Supply and the Price of Housing

Listed author(s):
  • Jean Imbs

    (Paris School of Economics)

  • Giovanni Favara

    (International Monetary Fund)

We show that since 1994, branching deregulations in the U.S have Âsignificantly affected the supply of mortgage credit, and ultimately house prices. With deregulation, the number and volume of originated mortgage loans increase, while denial rates fall. But the deregulation has no effect on a placebo sample, formed of independent mortgage companies that should not be affected by the regulatory change. This sharpens the causal interpretation of our results. Deregulation boosts the supply of mortgage credit, which has significant end effects on house prices. We find evidence house prices rise with branching deregulation, particularly so in Metropolitan Areas where construction is inelastic for topographic reasons. There is also evidence the fall in house prices after 2006 is most pronounced in least regulated states. We document these results in a large sample of counties across the U.S. We also focus on a reduced cross-section formed by counties on each side of a state border, where a regression discontinuity approach is possible. Our conclusions are strengthened.

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File URL: https://economicdynamics.org/meetpapers/2011/paper_1342.pdf
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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1342.

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Date of creation: 2011
Handle: RePEc:red:sed011:1342
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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