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Housing, Credit Markets and the Business Cycle

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  • Martin S. Feldstein

Abstract

The housing sector is now (September 2007) at the root of three distinct but related problems: (1) a sharp decline in house prices and the related fall in home building; (2) a subprime mortgage problem that has triggered a substantial widening of all credit spreads and the freezing of much of the credit markets; and (3) a decline in home equity loans and mortgage refinancing that could cause greater declines in consumer spending. Each of these could by itself be powerful enough to cause an economic downturn. The combination could cause a very serious recession unless there are other offsetting forces. In this paper, I discuss each of these and then comment on the implications for monetary policy.

Suggested Citation

  • Martin S. Feldstein, 2007. "Housing, Credit Markets and the Business Cycle," NBER Working Papers 13471, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13471
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    Cited by:

    1. Bracke, Philippe & Hilber, Christian A.L. & Silva, Olmo, 2018. "Mortgage debt and entrepreneurship," Journal of Urban Economics, Elsevier, vol. 103(C), pages 52-66.
    2. Osberg, Lars, 2013. "Instability implications of increasing inequality: Evidence from North America," Economic Modelling, Elsevier, vol. 35(C), pages 918-930.
    3. Gern, Klaus-Jürgen & Jannsen, Nils & Sander, Birgit & Scheide, Joachim & van Roye, Björn, 2008. "Abkühlung der Weltkonjunktur," Open Access Publications from Kiel Institute for the World Economy 4305, Kiel Institute for the World Economy (IfW Kiel).
    4. Constantinescu, Mihnea & Nguyen, Anh Dinh Minh, 2021. "A century of gaps: Untangling business cycles from secular trends," Economic Modelling, Elsevier, vol. 100(C).
    5. Yuliya Demyanyk & Otto Van Hemert, 2011. "Understanding the Subprime Mortgage Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1848-1880.
    6. Ms. Natalia T. Tamirisa & Alain N. Kabundi & Ms. Deniz O Igan & Mr. Francisco d Nadal De Simone & Marcelo Pinheiro, 2009. "Three Cycles: Housing, Credit, and Real Activity," IMF Working Papers 2009/231, International Monetary Fund.
    7. Iacovos Ioannou, 2018. "Housing Price, Credit, and Output Cycles: How Domestic and External Shocks Impact Lithuania's Credit," IMF Working Papers 2018/160, International Monetary Fund.
    8. Lansing, Kevin, 2009. "Speculative Bubbles and Overreaction to Technological Innovation," Journal of Financial Transformation, Capco Institute, vol. 26, pages 51-54.
    9. Bachar FAKHRY, 2016. "A Literature Review of the Efficient Market Hypothesis," Turkish Economic Review, KSP Journals, vol. 3(3), pages 431-442, September.
    10. Oikarinen, Elias, 2009. "Interaction between housing prices and household borrowing: The Finnish case," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 747-756, April.
    11. Paolo Gelain & Kevin J. Lansing & Caterina Mendicino, 2013. "House Prices, Credit Growth, and Excess Volatility: Implications for Monetary and Macroprudential Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 219-276, June.
    12. Sumit Agarwal & Michael J. Seiler & Ralph Siebert, 2022. "Do as Essay, Not as I Do? How Inflated List Prices of Unsold Essayer Homes Affect the Price Discovery Process," CESifo Working Paper Series 10069, CESifo.
    13. Llesh Lleshaj & Bezo Lorena - Balili, 2020. "Economic Growth Model and Foreign Direct Investment: Evidence from Albania," European Journal of Marketing and Economics Articles, Revistia Research and Publishing, vol. 4, January -.
    14. Lukáš Fiala & Petr Teplý, 2021. "The Use of Borrower-based Measures within Macroprudential Policy: Evidence from the European Economic Area," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2021(1), pages 71-91.
    15. Igan, Deniz & Kabundi, Alain & Nadal De Simone, Francisco & Pinheiro, Marcelo & Tamirisa, Natalia, 2011. "Housing, credit, and real activity cycles: Characteristics and comovement," Journal of Housing Economics, Elsevier, vol. 20(3), pages 210-231, September.
    16. Young Il Kim, 2014. "Housing and business cycles in Korea: assessing the role of housing volume cycles," Chapters, in: Susan Wachter & Man Cho & Moon Joong Tcha (ed.), The Global Financial Crisis and Housing, chapter 3, pages 40-61, Edward Elgar Publishing.
    17. Kevin J. Lansing, 2008. "Speculative growth and overreaction to technology shocks," Working Paper Series 2008-08, Federal Reserve Bank of San Francisco.

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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