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This article establishes a Tobin's q model in which house prices fluctuate around their long-run equilibrium due to fluctuations in credit availability and income. It is shown that house prices are positively related to credit in the short run, but negatively related to the availability of credit in the long run. Using survey data on banks' willingness to lend and data on disintermediation for the USA over a long period, and for eight OECD countries over a short period, it is shown that the availability of credit is the principal variable driving house prices around their long-run equilibrium.
