Working Paper: NBER ID: w25285
Authors: Josue Cox; Sydney C. Ludvigson
Abstract: Two potential driving forces of house price fluctuations are commonly cited: credit conditions and beliefs. We posit some simple empirical calculations using direct measures of credit conditions and beliefs to consider their potentially distinct roles in house price fluctuations at the aggregate level. Changes in credit conditions are positively related to the fraction of riskier non-conforming debt in total mortgage lending, while measures of beliefs are unrelated to this ratio. Credit conditions explain quantitatively large magnitudes of the variation in quarterly house price growth and also predict future house price growth. Beliefs bear some relation to contemporaneous house price growth but have little predictive power. A structural VAR analysis implies that shocks to credit conditions have quantitatively important dynamic causal effects on house price changes.
Keywords: Housing Market; Credit Conditions; Beliefs; House Prices
JEL Codes: E70; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credit conditions (F34) | riskier nonconforming debt (F34) |
| credit conditions (F34) | variation in house price growth (R31) |
| house price growth (R31) | credit conditions (F34) |
| credit conditions (F34) | house price growth (R31) |