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Housing Markets and the Financial Crisis of 2007-2009: Lessons for the Future

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  • John V. Duca
  • John Muellbauer
  • Anthony Murphy

Abstract

An unsustainable weakening of credit standards induced a US mortgage and housing bubble whose consumption impact was amplified by innovations altering the collateral role of housing. In countries with more stable credit standards, any overshooting of construction and house prices owed more to traditional housing supply and demand factors. Housing collateral effects on consumption varied, depending on the liquidity of housing wealth. Lessons include recognizing the importance of financial innovation, regulation, housing policies, and global financial imbalances for fueling credit, construction, house price and consumption cycles that vary across countries.

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Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0049.

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Date of creation: Apr 2010
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Handle: RePEc:cep:sercdp:0049

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Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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Keywords: financial crisis; house prices; credit crunch; subprime mortgages;

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