Credit Supply and the Price of Housing
- (pp. 958-92)
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 diversification, 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)Citation
Favara, Giovanni, and Jean Imbs. 2015. "Credit Supply and the Price of Housing." American Economic Review, 105 (3): 958-92. DOI: 10.1257/aer.20121416Additional Materials
JEL Classification
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- R21 Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
- R31 Housing Supply and Markets