Drivers of the great housing boom-bust: Credit conditions, beliefs, or both?

Josue Cox, Sydney C. Ludvigson

    Research output: Contribution to journalArticlepeer-review


    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 nonconforming 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 vector autoregression analysis implies that exogenous changes in credit conditions have quantitatively important dynamic causal effects on house price changes.

    Original languageEnglish (US)
    Pages (from-to)843-875
    Number of pages33
    JournalReal Estate Economics
    Issue number3
    StatePublished - Sep 1 2021

    ASJC Scopus subject areas

    • Accounting
    • Finance
    • Economics and Econometrics


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