Credit Supply and House Prices: Evidence from Mortgage Market Segmentation
35 Pages Posted: 17 Mar 2011 Last revised: 28 Nov 2020
Date Written: March 17, 2011
We develop a new instrument to analyze how exogenous changes in mortgage rates affect house values. Our instrument combines annual changes in the conforming loan limit (CLL) with the 80% loan-to-value threshold, which is commonly used in the approval of conforming loans. Houses that become eligible for cheaper funding through the CLL increase in value by about $1/sq ft. This estimate implies a local elasticity of house prices to interest rates below 6, a value significantly lower than earlier studies have proposed.
Keywords: credit supply, house prices, jumbo, conforming
JEL Classification: D10, D12, R20
Suggested Citation: Suggested Citation