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

Author

Listed:
  • Duca, John V.
  • Muellbauer, John
  • Murphy, Anthony
Abstract
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.

Suggested Citation

  • Duca, John V. & Muellbauer, John & Murphy, Anthony, 2011. "House prices and credit constraints: making sense of the U.S. experience," LSE Research Online Documents on Economics 58441, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:58441
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    References listed on IDEAS

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    More about this item

    Keywords

    house prices; credit standards; subprime mortgages;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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