Advanced Search
MyIDEAS: Login

When is a Housing Market Overheated Enough to Threaten Stability?

In: Property Markets and Financial Stability

Contents:

Author Info

  • John Muellbauer

    (Oxford University)

Abstract

In many countries, house prices are subject to boom/bust cycles and in some these are linked to severe economic and financial instability.� Overheating can have both a price and a quantity dimension, but it is likely that they are linked by common drivers.� However, much depends on the land-use planning regime which profoundly affects the supply response.� It is helpful to make the distinction between overshooting of house prices due to extrapolative expectations and 'frenzy', given fundamentals, and shifts in possibly fragile fundamentals.� The contribution of careful econometric modelling to estimating the effects of the former is demonstrated: central banks or other policy makers should institute quarterly surveys of house price expectations of potential housing market participants to help assess the first type of overshooting.� Assessing the fragility or otherwise of the economic fundamentals is more complex.� Credit supply conditions in the mortgage market are the 'elephant in the room'.� Without taking a credit conditions measure into account, one simply cannot understand the behaviour of house prices, housing debt and consumption in countries such as Australia, the UK, the US, South Africa or France or understand vulnerability of some economies to high levels of household debt.� Other financial and economic indicators of vulnerability are discussed, including high bank leverage ratios, high ratios of loans to deposits, debt, deficit and current account of ratios.� Models of early warning of financial and economic crises estimated on large country panels need to be quite complex, for example, including some important interaction effects since shock transmission is very institution dependent.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.rba.gov.au/publications/confs/2012/pdf/muellbauer.pdf
Download Restriction: no

Bibliographic Info

as in new window

This chapter was published in: Alexandra Heath & Frank Packer & Callan Windsor (ed.) Property Markets and Financial Stability, Reserve Bank of Australia, pages , 2012.

This item is provided by Reserve Bank of Australia in its series RBA Annual Conference Volume with number acv2012-07.

Handle: RePEc:rba:rbaacv:acv2012-07

Contact details of provider:
Postal: GPO Box 3947, Sydney NSW 2001
Phone: 61-2-9551-8111
Fax: 61-2-9551-8000
Email:
Web page: http://www.rba.gov.au/
More information through EDIRC

Order Information:
Web: http://www.rba.gov.au/forms/pub-order-form/

Related research

Keywords: dwelling prices; monetary policy; credit conditions; macroprudential regulation;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Duca, John V. & Muellbauer, John & Murphy, Anthony, 2010. "Housing markets and the financial crisis of 2007-2009: Lessons for the future," Journal of Financial Stability, Elsevier, vol. 6(4), pages 203-217, December.
  2. John Duca & John Muellbauer, 2013. "Tobin lives: integrating evolving credit market architecture into flow of funds based macro-models," Working Papers 1307, Federal Reserve Bank of Dallas.
  3. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
  4. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," NBER Working Papers 3368, National Bureau of Economic Research, Inc.
  5. John V. Duca & John Muellbauer & Anthony Murphy, 2011. "Shifting credit standards and the boom and bust in U.S. house prices," Working Papers 1104, Federal Reserve Bank of Dallas.
  6. Martin Lettau & Sydney C. Ludvigson, 2011. "Shocks and Crashes," NBER Working Papers 16996, National Bureau of Economic Research, Inc.
  7. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Berkeley Program on Housing and Urban Policy, Working Paper Series qt28d3s92s, Berkeley Program on Housing and Urban Policy.
  8. Martin Lettau & Sydney Ludvigson, 2003. "Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption," NBER Working Papers 9848, National Bureau of Economic Research, Inc.
  9. Martin Lettau, 2001. "Consumption, Aggregate Wealth, and Expected Stock Returns," Journal of Finance, American Finance Association, vol. 56(3), pages 815-849, 06.
  10. Aikman, David & Alessandri, Piergiorgio & Eklund, Bruno & Gai, Prasanna & Kapadia, Sujit & Martin, Elizabeth & Mora, Nada & Sterne, Gabriel & Willison, Matthew, 2009. "Funding liquidity risk in a quantitative model of systemic stability," Bank of England working papers 372, Bank of England.
  11. John V. Duca & John Muellbauer & Anthony Murphy, 2011. "House Prices and Credit Constraints: Making Sense of the U.S. Experience," SERC Discussion Papers 0077, Spatial Economics Research Centre, LSE.
  12. Edward L. Glaeser & Joshua D. Gottlieb & Joseph Gyourko, 2012. "Can Cheap Credit Explain the Housing Boom?," NBER Chapters, in: Housing and the Financial Crisis, pages 301-359 National Bureau of Economic Research, Inc.
  13. Ricardo J. Caballero, 2010. "Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome," NBER Working Papers 16429, National Bureau of Economic Research, Inc.
  14. Janine Aron & John V. Duca & John Muellbauer & Keiko Murata & Anthony Murphy, 2012. "Credit, Housing Collateral, And Consumption: Evidence From Japan, The U.K., And The U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(3), pages 397-423, 09.
  15. Orazio Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2005. "Booms and busts: consumption, house prices and expectations," IFS Working Papers W05/24, Institute for Fiscal Studies.
  16. Attanasio, Orazio P & Weber, Guglielmo, 1994. "The UK Consumption Boom of the Late 1980s: Aggregate Implications of Microeconomic Evidence," Economic Journal, Royal Economic Society, vol. 104(427), pages 1269-1302, November.
  17. Clayton, Jim, 1997. "Are Housing Price Cycles Driven by Irrational Expectations?," The Journal of Real Estate Finance and Economics, Springer, vol. 14(3), pages 341-63, May.
  18. Meese Richard & Wallace Nancy, 1994. "Testing the Present Value Relation for Housing Prices: Should I Leave My House in San Francisco?," Journal of Urban Economics, Elsevier, vol. 35(3), pages 245-266, May.
  19. Quigley, John M., 2007. "Regulation and Property Values in the United States: The High Cost of Monopoly," Berkeley Program on Housing and Urban Policy, Working Paper Series qt5692w323, Berkeley Program on Housing and Urban Policy.
  20. Meen, Geoffrey P, 1990. "The Removal of Mortgage Market Constraints and the Implications for Econometric Modelling of UK House Prices," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(1), pages 1-23, February.
  21. Mayer, Christopher J. & Somerville, C. Tsuriel, 2000. "Residential Construction: Using the Urban Growth Model to Estimate Housing Supply," Journal of Urban Economics, Elsevier, vol. 48(1), pages 85-109, July.
  22. Orazio Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2005. "Consumption, house prices and expectations," Bank of England working papers 271, Bank of England.
  23. Neil Bhutta & Jane Dokko & Hui Shan, 2010. "The depth of negative equity and mortgage default decisions," Finance and Economics Discussion Series 2010-35, Board of Governors of the Federal Reserve System (U.S.).
  24. Orazio Attanasio & Andrew Leicester & Matthew Wakefield, 2011. "Do House Prices Drive Consumption Growth? The Coincident Cycles Of House Prices And Consumption In The Uk," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 399-435, 06.
  25. DiPasquale, Denise, 1999. "Why Don't We Know More about Housing Supply?," The Journal of Real Estate Finance and Economics, Springer, vol. 18(1), pages 9-23, January.
  26. Cameron, Gavin & Muellbauer, John & Murphy, Anthony, 2006. "Was There a British House Price Bubble? Evidence from a Regional Panel," CEPR Discussion Papers 5619, C.E.P.R. Discussion Papers.
  27. John Muellbauer, 2005. "Property Taxation and the Economy after the Barker Review," Economic Journal, Royal Economic Society, vol. 115(502), pages C99-C117, 03.
  28. Muellbauer, John & Williams, David M, 2011. "Credit Conditions and the Real Economy: The Elephant in the Room," CEPR Discussion Papers 8386, C.E.P.R. Discussion Papers.
  29. Deniz Igan & Heedon Kang, 2011. "Do Loan-to-Value and Debt-to-Income Limits Work? Evidence from Korea," IMF Working Papers 11/297, International Monetary Fund.
  30. John V Duca & John Muellbauer & Anthony Murphy, 2012. "Credit standards and the bubble in US house prices: new econometric evidence," BIS Papers chapters, in: Bank for International Settlements (ed.), Property markets and financial stability, volume 64, pages 83-89 Bank for International Settlements.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:rba:rbaacv:acv2012-07. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Paula Drew).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.