How do house prices respond to mortgage supply?

Guglielmo Barone, Francesco David, Guido de Blasio and Sauro Mocetti

Journal of Economic Geography, 2021, vol. 21, issue 1, 127-140

Abstract: We examine the impact of household mortgages on house prices. Using biannual data on Italian cities in the period 2003–2015, we build an exogenous and fully data-driven indicator of mortgage supply stance and use it as instrument for actual extended mortgages. Our results indicate that mortgages have a positive and significant causal effect on house prices, with an estimated elasticity of around 0.1. The estimated effect is larger during the expansionary phase of the housing cycle. We also find evidence of significant spatial heterogeneity: mortgages push real estate values more in cities where the housing supply curve is less elastic or households are more dependent on external finance.

Keywords: Mortgage supply; house prices; local housing market (search for similar items in EconPapers)
JEL-codes: G21 R21 R51 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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