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Shifting Credit Standards and the Boom and Bust in U.S. House Prices

John Duca, John Muellbauer () and Anthony Murphy ()

SERC Discussion Papers from Spatial Economics Research Centre, LSE

Abstract: The U.S. house price boom has been linked to an unsustainable easing of mortgage credit standards. However, standard time series models of US house prices omit credit constraints and perform poorly in the 2000's. We incorporate data on credit constraints for first time buyers into a model of US house prices based on the (inverted) demand for housing services. The model yields not only a stable long-run cointegrating relationship, a reasonable speed of adjustment, plausible income and price elasticities and an improved fit, but also sensible estimates of tax credit effects and the possible bottom in real house prices.

Keywords: house prices; credit standards; subprime mortgages (search for similar items in EconPapers)
JEL-codes: R31 G21 E51 C51 C52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur, nep-geo, nep-pbe and nep-ure
Date: 2011-03
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Working Paper: Shifting Credit Standards and the Boom and Bust in US House Prices (2011) Downloads
Working Paper: Shifting credit standards and the boom and bust in U.S. house prices (2011) Downloads
Working Paper: Shifting credit standards and the boom and bust in U.S. house prices (2011) Downloads
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