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Expectations, credit conditions, and housing boom-bust: Evidence from SVAR with sign and zero restrictions

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  • Ma, Xutao
  • Zhang, Zhen

Abstract

Using a SVAR model with sign and zero restrictions, we propose a novel scheme to identify expectation, credit supply and mortgage rate shocks with the aim of exploring their role in the 2000s housing boom-bust cycles. Overall, credit supply and mortgage rate shocks are two major drivers of housing fluctuations instead of expectation shock. However, the relative importance of the three shocks varies considerably over different episodes. Specifically, gradual rise in house prices during 1999-2002 is mainly due to appreciation expectations. Such conclusion is reversed over boom-bust cycles. Compared with less than 10% contribution of expectation shock, credit supply and mortgage rate shocks become the two most important drivers of housing boom, with 20% and 24.5% contribution, respectively. In the bust, 20.2% and 23.1% of decline in house prices are associated with credit supply and mortgage rate shocks, respectively, while only 7.4% can be attributed to expectation shock.

Suggested Citation

  • Ma, Xutao & Zhang, Zhen, 2022. "Expectations, credit conditions, and housing boom-bust: Evidence from SVAR with sign and zero restrictions," Journal of Banking & Finance, Elsevier, vol. 134(C).
    • Handle: RePEc:eee:jbfina:v:134:y:2022:i:c:s0378426621002818
    DOI: 10.1016/j.jbankfin.2021.106330
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    More about this item

    Keywords

    House prices; Credit supply; Mortgage rate; Expectations; SVAR; Sign and zero restrictions;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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