Nonbank Growth and Local Housing Booms

We study the effect of uneven nonbank mortgage expansion on localized housing market dynamics. Leveraging the local conforming loan-eligible share as an instrument for nonbank credit supply, we show that increased nonbank lending drives housing booms, characterized by rapid home price appreciation, rising transaction volumes, and intensified market competition. The effects of nonbank credit are especially persistent in census tracts near affluent neighborhoods, potentially by facilitating gentrification, while more short-lived in areas further from these neighborhoods. Additionally, we demonstrate that nonbank credit expansion has contributed to narrowing within-county price disparities across neighborhoods, thereby reshaping wealth distribution. Our findings highlight the crucial role of nonbank credit in housing market trends and household welfare.