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Housing Booms and Busts: Dissecting Housing and MBS Markets Linkages

Author

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  • Abdulraheem Maytham

    (Department of Economics, Kuwait University, Sabah Al Salem University City, Kuwait)

Abstract

This paper estimates an SVAR with housing and mortgage markets to study the 2007–2009 financial crisis along two dimensions. Firstly, it examines the links between the composition of mortgage-backed securities (MBS) and the US housing market leading up to the financial crisis. Secondly, it investigates the role of liquidity shocks and GSEs in triggering the financial crisis. Four main findings emerge from the estimates. Firstly, house prices increase following shocks to private MBS issuance activity. Secondly, positive housing demand shocks increase the share of private MBS issuances relative to securities issued by the GSEs. These housing and MBS market linkages are economically and statistically significant during the 1998–2006 housing price boom. Thirdly, liquidity shocks emerge as the most important driver of the commercial paper spread during the 2007–2009 financial crisis. Lastly, the role of the GSEs in the collapse of the MBS market is limited.

Suggested Citation

  • Abdulraheem Maytham, 2025. "Housing Booms and Busts: Dissecting Housing and MBS Markets Linkages," The B.E. Journal of Macroeconomics, De Gruyter, vol. 25(1), pages 287-329.
    • Handle: RePEc:bpj:bejmac:v:25:y:2025:i:1:p:287-329:n:1004
    DOI: 10.1515/bejm-2024-0044
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    More about this item

    Keywords

    housing; mortgage market; securitization; financial crisis; stochastic volatility; time-varying parameters;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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