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Abstract for:

House Prices and Credit Constraints: Making Sense of the U.S. Experience

John V.  Duca,  John  Muellbauer,  Anthony  Murphy,  March 2011
Paper No' SERCDP0077: | Full paper (pdf)
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Keywords: house prices; credit standards, subprime mortgages

JEL Classification: R31; G21; E51; C51; C52

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: SERC Discussion Papers
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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.