Joint with M.Mastrogiacomo and M. Mangan
This paper investigates how changes in credit availability influence house prices. We show that increases in household credit triggered by a relaxation of lending standards lead to higher transaction prices, higher frequency and amounts of overbidding transactions, and lower sale times in the housing market. The impact on prices increases throughout the housing boom due to a higher take-up of credit by households. Also, prices increase more in locations with tighter housing supply and higher penetration of institutional investors, among liquidity-constrained but credit-unconstrained buyers, as well as for more expensive properties. The findings support the credit-driven demand hypothesis and highlight that macroprudential policy contains systemic risk not only by reducing household leverage, but also by curbing house price growth over the cycle.
Working paper available soon.