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

Author

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

Abstract

Most U.S. house price models break down in the mid-2000s due to the omission of exogenous changes in mortgage credit supply (associated with the subprime mortgage boom) from house price-to-rent ratio and inverted housing demand models. Previous models lack data on credit constraints facing first-time homebuyers. 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

  • John V. Duca & John N. Muellbauer & Anthony Murphy, 2011. "House prices and credit constraints: making sense of the U.S. experience," Working Papers 1103, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:1103
    Note: Published as: Duca, John V., John Muellbauer and Anthony Murphy (2011), "House Prices and Credit Constraints: Making Sense of the U.S. Experience," The Economic Journal 121 (552): 533-551.
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    References listed on IDEAS

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    More about this item

    Keywords

    Housing - Prices; Subprime mortgage; Credit; Rent;
    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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