Economic Fundamentals, Subprime Lending and Housing Prices: Evidence from MSA-level Panel Data

This study finds that employment, real construction cost and the real user cost of housing have a significant impact on real housing price over the 1990:Q2-2009:Q1 period for a panel of 20 metropolitan statistical areas (MSAs) in the US. Over the 2003-2005 period when subprime lending soared, all 20...

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Bibliographic Details
Published in:Housing studies 2011-09, Vol.26 (6), p.897-910
Main Authors: Bhattacharya, Radha, Kim, Sei-Wan
Format: Article
Language:English
Subjects:
Appreciation
Bank loans
Comparative analysis
Construction industry
Factor analysis
fixed effects
fundamentals
Housing
Housing prices
Magnitude
Metropolitan areas
metropolitan statistical area (MSA)
Mortgages
Panel data
Policy makers
Prevalence
Prices
Real estate market
Real housing price index
Statistical analysis
Statistics
subprime lending
United States
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Summary:This study finds that employment, real construction cost and the real user cost of housing have a significant impact on real housing price over the 1990:Q2-2009:Q1 period for a panel of 20 metropolitan statistical areas (MSAs) in the US. Over the 2003-2005 period when subprime lending soared, all 20 MSAs experienced a rapid appreciation in real price. Nine MSAs with higher subprime lending relative to the rest experienced a larger appreciation and four of these nine MSAs with high prevalence of second home purchases experienced the highest appreciation rates. The findings are important to policy makers because they point out the importance of underlying economic factors in determining home prices. In general, policy makers at the local level should caution against a sudden surge in the price of homes that is not sustained by economic fundamentals, especially since the magnitude and effect of such shocks can vary considerably across MSAs.
ISSN:0267-3037
1466-1810
DOI:10.1080/02673037.2011.593126