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Credit Supply and Housing Prices in National and Local Markets

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  • Susan M. Wachter

Abstract

The phenomenon of “irrational exuberance†around housing prices is now well established as a driving force of housing bubbles. However, the roles of credit supply and the mispricing of credit are less well understood. This article, discusses the recent literature on the relationship between credit supply and housing prices in national and local markets, with a view to identifying gaps in understanding this relationship as well as the implications of these gaps for the ability of market participants and regulators to detect systemic risk. This article connects the literature to the articles in this special issue, which emphasizes the importance of understanding local market conditions, including ways in which housing finance affects and is in turn affected by local markets.

Suggested Citation

  • Susan M. Wachter, 2016. "Credit Supply and Housing Prices in National and Local Markets," Public Finance Review, , vol. 44(1), pages 6-21, January.
    • Handle: RePEc:sae:pubfin:v:44:y:2016:i:1:p:6-21
    DOI: 10.1177/1091142114550996
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    References listed on IDEAS

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    1. Gary Gorton, 2009. "Information, Liquidity, and the (Ongoing) Panic of 2007," American Economic Review, American Economic Association, vol. 99(2), pages 567-572, May.
    2. Edward L. Glaeser & Joshua D. Gottlieb & Joseph Gyourko, 2012. "Can Cheap Credit Explain the Housing Boom?," NBER Chapters, in: Housing and the Financial Crisis, pages 301-359, National Bureau of Economic Research, Inc.
    3. Christopher L. Foote & Kristopher S. Gerardi & Paul S. Willen, 2012. "Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis," NBER Working Papers 18082, National Bureau of Economic Research, Inc.
    4. Coleman IV, Major & LaCour-Little, Michael & Vandell, Kerry D., 2008. "Subprime lending and the housing bubble: Tail wags dog?," Journal of Housing Economics, Elsevier, vol. 17(4), pages 272-290, December.
    5. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
    6. repec:ucp:bkecon:9780226081946 is not listed on IDEAS
    7. Goodman, Allen C. & Thibodeau, Thomas G., 2008. "Where are the speculative bubbles in US housing markets?," Journal of Housing Economics, Elsevier, vol. 17(2), pages 117-137, June.
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