Credit supply and the price of housing

Giovanni Favara, Jean Imbs

Research output: Contribution to journalArticlepeer-review


An exogenous expansion in mortgage credit has significant effects on house prices. This finding is established using US branching deregulations between 1994 and 2005 as instruments for credit. Credit increases for deregulated banks, but not in placebo samples. Such differential responses rule out demand-based explanations, and identify an exogenous credit supply shock. Because of geographic diversification, treated banks expand credit: housing demand increases, house prices rise, but to a lesser extent in areas with elastic housing supply, where the housing stock increases instead. In an instrumental variable sense, house prices are well explained by the credit expansion induced by deregulation.

Original languageEnglish (US)
Pages (from-to)958-992
Number of pages35
JournalAmerican Economic Review
Issue number3
StatePublished - Mar 1 2015

ASJC Scopus subject areas

  • Economics and Econometrics


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