Working Paper: CEPR ID: DP8129
Authors: Giovanni Favara; Jean Imbs
Abstract: We show that since 1994, branching deregulations in the U.S have significantly affected the supply of mortgage credit, and ultimately house prices. With deregulation, the number and volume of originated mortgage loans increase, while denial rates fall. But the deregulation has no effect on a placebo sample, formed of independent mortgage companies that should not be affected by the regulatory change. This sharpens the causal interpretation of our results. Deregulation boosts the supply of mortgage credit, which has significant end effects on house prices. We find evidence house prices rise with branching deregulation, particularly so in Metropolitan Areas where construction is inelastic for topographic reasons. There is also evidence the fall in house prices after 2006 is most pronounced in least regulated states. We document these results in a large sample of counties across the U.S. We also focus on a reduced cross-section formed by counties on each side of a state border, where a regression discontinuity approach is possible. Our conclusions are strengthened.
Keywords: bank branching; credit constraints; house prices; mortgage market
JEL Codes: G10; G12; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| branching deregulation (L51) | supply of mortgage credit (G21) |
| supply of mortgage credit (G21) | house prices (R31) |
| branching deregulation (L51) | house prices (R31) |
| deregulation (L51) | number and volume of mortgage loans (G21) |
| deregulation (L51) | denial rates (G22) |
| house prices (R31) | construction elasticity (L74) |
| fall in house prices post-2006 (R31) | states that were less regulated (K23) |