Anthony Murphy
House Prices and Credit Constraints: Making Sense of the U.S. Experience
Wednesday 2nd of December 2009
Anthony Murphy is an applied econometrician with active research interests in labour economics, financial economics and macroeconomics – specifically credit conditions, house prices and savings. His housing and savings research, which currently focuses on the UK and US, is very topical and widely cited. Before entering academia, he was a civil servant in the Dept. of Finance (Treasury) in Dublin. He moved to Hertford College, Oxford from University College Dublin five years ago.
Abstract
Most US house price models break down in the early 2000's. This structural break is due to the omission of a measure of exogenous changes in credit supply (associated with the sub-prime lending boom) from both inverted housing demand and house price to rent ratio models. Previous U.S. home price models lack data on credit constraints facing first-time home-buyers, likely accounting for the poor performance of house price models based on interest rates and income. We show that incorporating a measure of credit conditions - the cyclically adjusted loan to value ratio for first time buyers - into inverted housing demand and house price to rent ratio models yields stable long-run relationships, more precisely estimated income and interest rate coefficients, reasonable speeds of adjustment and improved model fits.
House Prices and Credit Constraints: Making Sense of the U.S. Experience
