TY  - JOUR
AU  - Glaeser, Edward L
AU  - Gottlieb, Joshua D
AU  - Gyourko, Joseph
TI  - Can Cheap Credit Explain the Housing Boom?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16230
PY  - 2010
Y2  - July 2010
DO  - 10.3386/w16230
UR  - http://www.nber.org/papers/w16230
L1  - http://www.nber.org/papers/w16230.pdf
N1  - Author contact info:
Edward L. Glaeser
Department of Economics
315A Littauer Center
Harvard University
Cambridge, MA 02138
Tel: 617/495-0575
Fax: 617/495-7730
E-Mail: eglaeser@harvard.edu

Joshua D. Gottlieb
University of Chicago
Harris School of Public Policy
1307 E. 60th St.
Chicago, IL 60637
E-Mail: jgottlieb@uchicago.edu

Joseph Gyourko
University of Pennsylvania
The Wharton School of Business
3620 Locust Walk
1480 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6302
Tel: 215/898-3003
Fax: 215/573-2220
E-Mail: gyourko@wharton.upenn.edu
M1  - published as Edward L. Glaeser, Joshua D. Gottlieb, Joseph Gyourko. "Can Cheap Credit Explain the Housing Boom?," in Edward L. Glaeser and Todd Sinai, editors, "Housing and the Financial Crisis" University of Chicago Press (2013)

AB  - Between 1996 and 2006, real housing prices rose by 53 percent according to the Federal Housing Finance Agency price index.  One explanation of this boom is that it was caused by easy credit in the form of low real interest rates, high loan-to-value levels and permissive mortgage approvals.  We revisit the standard user cost model of housing prices and conclude that the predicted impact of interest rates on prices is much lower once the model is generalized to include mean-reverting interest rates, mobility, prepayment, elastic housing supply, and credit-constrained home buyers.  The modest predicted impact of interest rates on prices is in line with empirical estimates, and it suggests that lower real rates can explain only one-fifth of the rise in prices from 1996 to 2006.  We also find no convincing evidence that changes in approval rates or loan-to-value levels can explain the bulk of the changes in house prices, but definitive judgments on those mechanisms cannot be made without better corrections for the endogeneity of borrowers' decisions to apply for mortgages.
ER  -