Can Cheap Credit Explain the Housing Boom?
This chapter examines the impact of interest rates on housing prices. It suggests that the impact of interest rates may be weaker than has been traditionally suggested by the asset market approach to house prices. Interest rates fail to adequately explain the great housing market fluctuations between 1996 and 2010. Over the long 1996 to 2006 boom, they cannot account for more than one-fifth of the rise in house prices. There is also no evidence that approval rates or down payment requirements can explain most or all of the movement in house prices.
I am grateful for financial support from the Taubman Center for State and Local Government.
Edward L. Glaeser
I have received speaking fees from organizations that organize members that invest in real estate markets, including the National Association of Real Estate Investment Managers and the Pension Real Estate Association.Joshua D. Gottlieb
Gottlieb thanks the Taubman Center for State and Local Government for financial support, and the Harvard Real Estate Academic Initiative and the Institute for Humane Studies.Joseph Gyourko
Gyourko gratefully acknowledges support from the Research Sponsors Program of the Zell/Lurie Real Estate Center at Wharton.