Working Paper: CEPR ID: DP8360
Authors: John V. Duca; John Muellbauer; Anthony Murphy
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.
Keywords: house prices; credit standards; subprime mortgages; house price to rent ratio
JEL Codes: R31; G21; E51; C51; C52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cyclically adjusted LTV ratios for first-time homebuyers (G21) | house price-to-rent ratio (R31) |
| rise in LTV ratios from 2000 to 2005 (G32) | easier access to credit for marginal homebuyers (G21) |
| easier access to credit for marginal homebuyers (G21) | housing price boom (R31) |
| tightening of credit standards post-2007 (G21) | housing prices (R31) |