Home price appreciation and residential lending standards
Journal of Economics and Business
We explore the effect of home price appreciation on residential lending standards in the U.S. across different sample periods. Using housing supply elasticity measures as instrumental variables for home price changes, we find that rising home prices led to easing lending standards between 2001 and 2006. Mortgage acceptance rates increased more in MSAs that experienced higher home price appreciation, contributing to the credit boom. However, we find that home price appreciation is associated with tighter lending standards between 2012 and 2016, suggesting that banks took a more cautious view of home price appreciation after the financial crisis. To study the negative relationship between home price appreciation and lending standards during the post-crisis years, we examine loan acceptance rates of small and large banks separately. We find that it was the small banks who lowered loan acceptance rates in MSAs with higher home price appreciation, which caused the overall loan acceptance rates to decline.
Financial crisis, Home price, Mortgage credit supply, Residential lending standards, Small banks, Subprime loans
Accounting and Finance
Yongjia Li and Salman Tahsin. "Home price appreciation and residential lending standards" Journal of Economics and Business (2021). https://doi.org/10.1016/j.jeconbus.2020.105954