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Home price appreciation and residential lending standards

Yongjia Li and Salman Tahsin

Journal of Economics and Business, 2021, vol. 114, issue C

Abstract: We explore the effect of home price appreciation on residential lending standards in the U.S. across different sample periods. Using housing supply elasticity measures as instrumental variables for home price changes, we find that rising home prices led to easing lending standards between 2001 and 2006. Mortgage acceptance rates increased more in MSAs that experienced higher home price appreciation, contributing to the credit boom. However, we find that home price appreciation is associated with tighter lending standards between 2012 and 2016, suggesting that banks took a more cautious view of home price appreciation after the financial crisis. To study the negative relationship between home price appreciation and lending standards during the post-crisis years, we examine loan acceptance rates of small and large banks separately. We find that it was the small banks who lowered loan acceptance rates in MSAs with higher home price appreciation, which caused the overall loan acceptance rates to decline.

Keywords: Home price; Residential lending standards; Financial crisis; Small banks; Subprime loans; Mortgage credit supply (search for similar items in EconPapers)
JEL-codes: G20 G21 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:114:y:2021:i:c:s0148619520303982

DOI: 10.1016/j.jeconbus.2020.105954

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