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Shifting Credit Standards and the Boom and Bust in US House Prices

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  • Muellbauer, John
  • Murphy, Anthony
  • Duca, John V

Abstract

The U.S. house price boom has been linked to an unsustainable easing of mortgage credit standards. However, standard time series models of US house prices omit credit constraints and perform poorly in the 2000?s. We incorporate data on credit constraints for first time buyers into a model of US 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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  • Muellbauer, John & Murphy, Anthony & Duca, John V, 2011. "Shifting Credit Standards and the Boom and Bust in US House Prices," CEPR Discussion Papers 8361, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8361
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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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