House Prices and Credit Constraints: Making Sense of the US Experience

Duca, John V.; Muellbauer, John; Murphy, Anthony

doi:10.1111/j.1468-0297.2011.02424.x

Cited by 193 publications

(145 citation statements)

References 30 publications

(38 reference statements)

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“…Duca et al (2011) find that including the rising LTV of first-time homebuyers substantially improves the ability of an econometric time-series model to fit aggregate US house price dynamics, especially during the boom of the early-to mid-2000s. Their estimates imply that a one percentage point higher average LTV of first-time homebuyers is associated with a one percentage point increase in house price growth.…”

Section: Review Of Related Empirical Literaturementioning

confidence: 99%

The Sensitivity of Housing Demand to Financing Conditions: Evidence from a Survey

Fuster

Zafar

2014

SSRN Journal

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The sensitivity of housing demand to mortgage rates and available leverage is key to understanding the effect of monetary and macroprudential policies on the housing market. However, since there is generally no exogenous variation in these variables that is independent of confounding factors (such as economic conditions or household characteristics), it is difficult to cleanly estimate these sensitivities empirically. We circumvent these issues by designing a strategic survey in which respondents are asked for their willingness to pay (WTP) for a home comparable to their current one, under different financing scenarios. We vary mortgage rates, down payment constraints, and non-housing wealth. We find that a relaxation of down payment constraints, or an exogenous increase in non-housing wealth, has large effects on WTP, especially for relatively poorer and more credit-constrained borrowers. On the other hand, changing the mortgage rate by 2 percentage points only changes WTP by about 5 percent on average. These findings have implications for theoretical models of house price determination, as well as for policy.

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Section: Review Of Related Empirical Literaturementioning

confidence: 99%

The Sensitivity of Housing Demand to Financing Conditions: Evidence from a Survey

Fuster

Zafar

2014

SSRN Journal

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“…While these alternative approaches are likely to result in higher levels of LTV ratios, we are especially interested in the development of these ratios over a rather long time span. While we believe the Flow of Funds data provide the most comprehensive and consistent time series evidence in this respect, substantial increases over time in the LTV ratios faced by households have been extensively documented; see, e.g., Campbell and Hercowitz (2009), Duca et al (2011), Favilukis et al (2017, and Boz and Mendoza (2014). It should be noted that for households, various government-sponsored programs directed at lowering the down-payment requirements faced by low-income or …rst-time home buyers have been enacted by di¤erent administrations (Chambers et al, 2009).…”

Section: Appendix A: Assets and Liabilities In The Usmentioning

confidence: 99%

“…Based on the surveys from 1992, 1995, and 1998, they arrive at an average LTV ratio for this group of around 0.8, while our measure ‡uctuates around 0.5 during the 1990s. Following Duca et al (2011), an alternative approach is to focus on …rst-time home-buyers, who are likely to fully exploit their borrowing capacity. Using data from the American Housing Survey, these authors report LTV ratios approaching 0.9 towards the end of the 1990s; reaching a peak of almost 0.95 before the onset of the recent crisis.…”

Section: Appendix A: Assets and Liabilities In The Usmentioning

confidence: 99%

Leverage and Deepening Business Cycle Skewness

Jensen¹,

Petrella

Ravn³

et al. 2017

SSRN Journal

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We document that the U.S. economy has been characterized by an increasingly negative business cycle asymmetry over the last three decades. This …nding can be explained by the concurrent increase in the …nancial leverage of households and …rms. To support this view, we devise and estimate a dynamic general equilibrium model with collateralized borrowing and occasionally binding credit constraints. Higher leverage increases the likelihood that constraints become slack in the face of expansionary shocks, while contractionary shocks are further ampli…ed due to binding constraints. As a result, booms become progressively smoother and more prolonged than busts. We are therefore able to reconcile a more negatively skewed business cycle with the Great Moderation in cyclical volatility. Finally, in line with recent empirical evidence, …nancially-driven expansions lead to deeper contractions, as compared with equally-sized non-…nancial expansions.

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“…This is true both for comparisons between actual and equilibrium price-rent ratios and for cointegration tests and ECMs. Duca et al (2011) consider how the credit constraint varies over time. In booms, the credit constraint becomes weaker, which in turn helps further stimulate the boom.…”

Section: Changing Credit Constraintsmentioning

confidence: 99%

How Can One Tell When the Housing Market Is Out of Equilibrium?

Hill

Mascarilla-i-Miro²,

Yegorov³

2013

Proceedings of the 20th Annual European Real Estate Society Conference - Vienna, Austria

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Purpose -One way of detecting departures from equilibrium is by comparing house prices and rents. Here I assess the viability of this approach.Design/methodology -Error-correction models (ECMs) based on price and rent indexes can be used to forecast movements in house prices. The short-term forecasting ability of ECMs is limited though due to the long persistence of departures from equilibrium. ECMs also suffer from the limitation that they do not tell us whether the price-rent ratio is above or below its equilibrium level at any given point in time. To answer this question it is necessary to make cross-section comparisons of prices, rents and user cost (i.e., the cost incurred by owning a house). Findings -A meaningful cross-section comparison requires that prices and rents are quality adjusted.This may require the use of hedonic methods. The equilibrium price-rent ratio (which is derived from the user cost) is difficult to compute since it depends on the expected capital gain. Also, both the actual and equilibrium price-rent ratios differ depending on which segment of the housing market is considered.Originality/value -The housing market, which is prone to booms and busts, can very significantly affect the rest of the economy. Hence it is important that central banks and governments can detect when the housing market is out of equilibrium. I show here how difficult it is to detect such departures.

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House Prices and Credit Constraints: Making Sense of the US Experience

Cited by 193 publications

References 30 publications

The Sensitivity of Housing Demand to Financing Conditions: Evidence from a Survey

The Sensitivity of Housing Demand to Financing Conditions: Evidence from a Survey

Leverage and Deepening Business Cycle Skewness

How Can One Tell When the Housing Market Is Out of Equilibrium?

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