TY  - JOUR
AU  - Adelino,Manuel
AU  - Schoar,Antoinette
AU  - Severino,Felipe
TI  - Credit Supply and House Prices: Evidence from Mortgage Market Segmentation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17832
PY  - 2012
Y2  - February 2012
UR  - http://www.nber.org/papers/w17832
L1  - http://www.nber.org/papers/w17832.pdf
N1  - Author contact info:
Manuel Adelino
Duke University
Fuqua School of Business
100 Fuqua Drive
Durham, NC 27708-0120 
Tel: 857-383-1027
E-Mail: manuel.adelino@gmail.com

Antoinette Schoar
MIT Sloan School of Management
100 Main Street, E62-638
Cambridge, MA  02142
Tel: 617/253-3763
Fax: 617/258-6855
E-Mail: aschoar@mit.edu

Felipe Severino
MIT Sloan School of Management
100 Main Street, E62-678
Cambridge, MA 02142
E-Mail: fseverin@mit.edu
AB  - We show that easier access to credit significantly increases house prices by using exogenous changes in the conforming loan limit as an instrument for lower cost of financing. Houses that become eligible for financing with a conforming loan show an increase in house value of 1.16 dollars per square foot (for an average price per square foot of 220 dollars) and higher overall house prices controlling for a rich set of house characteristics. However, these estimated coefficients are consistent with a local elasticity of house prices to interest rates that is lower than some previous studies proposed (below 10). In addition, loan to value ratios around the conforming loan limit deviate significantly from the common 80 percent norm, which confirms that it is an important factor in the financing choices of home buyers. In line with our interpretation, the results are stronger in the first half of our sample (1998-2001) when the conforming loan limit was more important, given that other forms of financing were less common and substantially more expensive. Results are also stronger in zip codes where personal income growth is low or declining, and in regions with lower elasticity of housing supply.
ER  -