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Credit Supply and the Price of Housing †

Credit Supply and the Price of Housing † Abstract An exogenous expansion in mortgage credit has significant effects on house prices. This finding is established using US branching deregulations between 1994 and 2005 as instruments for credit. Credit increases for deregulated banks, but not in placebo samples. Such differential responses rule out demand-based explanations, and identify an exogenous credit supply shock. Because of geographic diver-sification, treated banks expand credit: housing demand increases, house prices rise, but to a lesser extent in areas with elastic housing supply, where the housing stock increases instead. In an instrumental variable sense, house prices are well explained by the credit expansion induced by deregulation. (JEL G21, G28, R21, R31 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Credit Supply and the Price of Housing †

American Economic Review , Volume 105 (3) – Mar 1, 2015

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Publisher
American Economic Association
Copyright
Copyright © 2015 by the American Economic Association
Subject
Articles
ISSN
0002-8282
DOI
10.1257/aer.20121416
Publisher site
See Article on Publisher Site

Abstract

Abstract An exogenous expansion in mortgage credit has significant effects on house prices. This finding is established using US branching deregulations between 1994 and 2005 as instruments for credit. Credit increases for deregulated banks, but not in placebo samples. Such differential responses rule out demand-based explanations, and identify an exogenous credit supply shock. Because of geographic diver-sification, treated banks expand credit: housing demand increases, house prices rise, but to a lesser extent in areas with elastic housing supply, where the housing stock increases instead. In an instrumental variable sense, house prices are well explained by the credit expansion induced by deregulation. (JEL G21, G28, R21, R31 )

Journal

American Economic ReviewAmerican Economic Association

Published: Mar 1, 2015

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