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Mortgage Fund Flows, Capital Appreciation, and Real Estate Cycles

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  • Marcel Arsenault
  • Jim Clayton
  • Liang Peng

    ()

Abstract

This paper provides strong evidence for a positive feedback loop between property prices and mortgage supply, using data from the U.S. commercial property and mortgage markets over the 1991 to 2011 period. The empirical analyses control for the endogeneity of property prices, mortgage flows, mortgage interest rates, and loan to value ratios, and provide two main findings. First, exogenous increases in mortgage supply, measured with the growth of the CMBS market, significantly reduce property cap rates. Second, volatility of past price changes and the “biggest loss” in property values in the past significantly affect mortgage supply. This positive feedback loop may be an important driving force for real estate cycles. Copyright Springer Science+Business Media, LLC 2013

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File URL: http://hdl.handle.net/10.1007/s11146-012-9361-4
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Bibliographic Info

Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 47 (2013)
Issue (Month): 2 (August)
Pages: 243-265

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Handle: RePEc:kap:jrefec:v:47:y:2013:i:2:p:243-265

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Web page: http://www.springerlink.com/link.asp?id=102945

Related research

Keywords: Real estate cycles; Commercial real estate; Mortgage fund flows; Positive feedback loop; G12; E32; E44;

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References

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  1. Charles Ka Yui Leung, 2005. "Equilibrium Correlation of Asset Price and Return," Departmental Working Papers _175, Chinese University of Hong Kong, Department of Economics.
  2. Jim Clayton & David Ling & Andy Naranjo, 2009. "Commercial Real Estate Valuation: Fundamentals Versus Investor Sentiment," The Journal of Real Estate Finance and Economics, Springer, vol. 38(1), pages 5-37, January.
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  17. Grenadier, Steven R, 1995. "The Persistence of Real Estate Cycles," The Journal of Real Estate Finance and Economics, Springer, vol. 10(2), pages 95-119, March.
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