Essays on house price fluctuations in the U.S

The U.S. experienced an unprecedented increase in house prices starting in the late 1990s and ending in 2007. During this time, the volume of mortgage credit increased rapidly, and the ratio of household debt to income increased as well.;The first chapter uses an Engle-Granger two-step method to examine the possible long-run and short-run relationships between house prices and mortgage loans. Dynamic ordinary least squares estimation in the first step finds a long-run relationship between the two variables. The second step employs an error correction model to test for a short-run relationship and finds that house price growth responds immediately to a change in mortgage credit. In addition, growth in the volume of mortgage loans has a positive response to a contemporaneous change in house prices. Overall, the empirical results suggest the possibility of a two-way relationship between growth in the volume of mortgage credit and house price appreciation at the national level for the 1975-2007 period.;The second chapter examines the short-run relationship between house prices and the volume of mortgage loans for twenty of the major metropolitan areas by applying the Arellano-Bond estimation method to a dynamic panel data model. The empirical results indicate that house price growth contemporaneously impacts growth in the volume of mortgage loans. Most of the variation in house prices for these metropolitan areas, however, can be explained by changes in construction costs and past changes in house prices while a change in the volume of mortgage loans has minimal impact.;The third chapter uses data from the Survey of Consumer Finances (SCF) to examine the relationship between house prices and household indebtedness across income quantiles. The median regression results suggest that house price appreciation explains some of the increase in household debt relative to income observed in recent years. In addition, the impact of relative house price fluctuations on the measure of indebtedness differs across income groups. The literature on default rates indicates a positive relationship between the borrower's debt payment-to-income ratio and the probability of default, so the results from this study provide useful information for both policymakers and lenders.