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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

Suggested Citation

  • Marcel Arsenault & Jim Clayton & Liang Peng, 2013. "Mortgage Fund Flows, Capital Appreciation, and Real Estate Cycles," The Journal of Real Estate Finance and Economics, Springer, vol. 47(2), pages 243-265, August.
    • Handle: RePEc:kap:jrefec:v:47:y:2013:i:2:p:243-265
    DOI: 10.1007/s11146-012-9361-4
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    References listed on IDEAS

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    Cited by:

    1. Chenzi Yang & Fernando Moreira & Thomas Welsh Archibald, 2023. "Community banks' capital requirements and regional housing tenure," Australian Economic Papers, Wiley Blackwell, vol. 62(4), pages 723-746, December.
    2. Konstantinos Vasilopoulos & William Tayler, 2021. "Real Estate and Construction Sector Dynamics Over the Business Cycle," Working Papers 326919291, Lancaster University Management School, Economics Department.
    3. Jun Li & Xiaoli Liang, 2020. "Beyond the Cap Rate: Valuation of Multifamily Properties," The Journal of Real Estate Finance and Economics, Springer, vol. 60(1), pages 99-110, February.
    4. Nuri Hacıevliyagil & Krzysztof Drachal & Ibrahim Halil Eksi, 2022. "Predicting House Prices Using DMA Method: Evidence from Turkey," Economies, MDPI, vol. 10(3), pages 1-27, March.
    5. Yun-Ling Wu & Cheng-Huang Tung & Chun-Chang Lee, 2017. "The Power of a Leading Indicators Fluctuation Trend for Forecasting Taiwans Real Estate Business Cycle: An Application of a Hidden Markov Model," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(1), pages 81-98, January.
    6. MeiChi Huang & LinYing Yeh, 2015. "Should the Fed take extra action for the recent housing bubble? Evidence from asymmetric transitory shocks," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(4), pages 762-781, October.

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    More about this item

    Keywords

    Real estate cycles; Commercial real estate; Mortgage fund flows; Positive feedback loop; G12; E32; E44;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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