Department of Economics
New York University
Institutional Affiliation: New York University
NBER Working Papers and Publications
|November 2018||Drivers of the Great Housing Boom-Bust: Credit Conditions, Beliefs, or Both?|
with Sydney C. Ludvigson: w25285
Two potential driving forces of house price fluctuations are commonly cited: credit conditions and beliefs. We posit some simple empirical calculations using direct measures of credit conditions and beliefs to consider their potentially distinct roles in house price fluctuations at the aggregate level. Changes in credit conditions are positively related to the fraction of riskier non-conforming debt in total mortgage lending, while measures of beliefs are unrelated to this ratio. Credit conditions explain quantitatively large magnitudes of the variation in quarterly house price growth and also predict future house price growth. Beliefs bear some relation to contemporaneous house price growth but have little predictive power. A structural VAR analysis implies that shocks to credit condition...