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Abstract

We analyse the effect of credit supply on households' homeownership status and mortgage debt, as well as other variables relating to housing costs and home equity. We demonstrate that banking deregulation as enacted by the Interstate Banking and Branching Efficiency Act (IBBEA) together with states' autonomy to set the degree and timing of deregulation provides an exogenous shift in credit supply which shows variation across states and time. We use this variation to isolate the effect of credit supply from confounding factors which could simultaneously affect credit supply and demand. Using a rich individual-level panel covering the period 1996 to 2008, and controlling for individual and region-year fixed effects, we find that a shift from full regulation to full deregulation increases the probability of owning a home by one, and of having a mortgage by two percentage points. The deregulation observed between 1990 and 2005 can explain at least one fifth, and up to 45% of the increase in homeowneship and the share of households with mortgages. For observations residing in non-metropolitan areas, we also find significant effects of deregulation on the amount of mortgage debt, reported home values, monthly mortgage payments, and debt to value as well as debt to income ratios. Most of these effects are driven by young households, and by individuals with higher incomes. Our results inform on the causes of the rise in homeownership and mortgage debt in the 1990s and 2000s which have led up to the housing crisis in the late 2000s.

Publication Type:	Monograph (Working Paper)
Additional Information:	© The Authors.
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
Departments:	School of Policy & Global Affairs > Economics School of Policy & Global Affairs > Economics > Discussion Paper Series

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