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Housing finance and real-estate booms: A cross-country perspective

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  • Cerutti, Eugenio
  • Dagher, Jihad
  • Dell'Ariccia, Giovanni

Abstract

The recent global financial crisis has highlighted the potential conflict between improving access to housing finance and maintaining financial stability. Using a new dataset on housing finance and house prices for a sample of more than 50 countries, this paper analyzes the dynamic relationship between household credit and house-price booms. It also examines the potential role of some housing finance characteristics on the likelihood of house-price booms and on how they ended. The following stylized patterns are highlighted. First, credit and house-price booms are tightly linked. Second, house-price booms have occurred more often with a twin credit boom (simultaneous booms in both household and firm credit) than with a solo boom in household credit. Third, house-price booms seem to be more likely in countries with higher loan to value ratios and mortgage funding models based on securitization or wholesale sources. Finally, we find thatthe majority of house-price booms end up with a recession, and that both twin credit booms and non-retail deposit funding predict a worse landing.

Suggested Citation

  • Cerutti, Eugenio & Dagher, Jihad & Dell'Ariccia, Giovanni, 2017. "Housing finance and real-estate booms: A cross-country perspective," Journal of Housing Economics, Elsevier, vol. 38(C), pages 1-13.
  • Handle: RePEc:eee:jhouse:v:38:y:2017:i:c:p:1-13
    DOI: 10.1016/j.jhe.2017.02.001
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    Cited by:

    1. Mariarosaria Comunale, 2017. "Synchronicity of real and financial cycles and structural characteristics in EU countries," CEIS Research Paper 414, Tor Vergata University, CEIS, revised 25 Sep 2017.
    2. Núria Rodríguez‐Planas, 2018. "Mortgage finance and culture," Journal of Regional Science, Wiley Blackwell, vol. 58(4), pages 786-821, September.
    3. Funke, Michael & Kirkby, Robert & Mihaylovski, Petar, 2018. "House prices and macroprudential policy in an estimated DSGE model of New Zealand," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 152-171.
    4. Markus Hertrich, 2019. "A Novel Housing Price Misalignment Indicator for Germany," German Economic Review, Verein für Socialpolitik, vol. 20(4), pages 759-794, November.
    5. Cappelletti, Giuseppe & Peeters, Jonas & Budrys, Žymantas & Varraso, Paolo & Ponte Marques, Aurea, 2019. "Impact of higher capital buffers on banks’ lending and risk-taking: evidence from the euro area experiments," Working Paper Series 2292, European Central Bank.
    6. Mats Wilhelmsson & Jianyu Zhao, 2018. "Risk Assessment of Housing Market Segments: The Lender’s Perspective," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 11(4), pages 1-22, October.
    7. de Araujo, Douglas Kiarelly Godoy & Barroso, Joao Barata Ribeiro Blanco & Gonzalez, Rodrigo Barbone, 2020. "Loan-to-value policy and housing finance: Effects on constrained borrowers," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    8. Elona Dushku & Antje Hildebrandt & Erjona Suljoti, 2019. "The impact of housing markets on banks’ risk-taking behavior: evidence from CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q3/19, pages 55-75.
    9. Adrian Alter & Jane Dokko & Dulani Seneviratne, 2018. "House Price Synchronicity, Banking Integration, and Global Financial Conditions," IMF Working Papers 18/250, International Monetary Fund.
    10. Gerhard Rünstler & Marente Vlekke, 2018. "Business, housing, and credit cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(2), pages 212-226, March.
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    12. Robert N. Killins, 2020. "Real estate prices and banking performance: evidence from Canada," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(1), pages 78-98, January.
    13. John Muellbauer, 2019. "A Tale of Two Cities: is Overvaluation a Capital Issue?," Economics Series Working Papers 872, University of Oxford, Department of Economics.
    14. Michael Thornley, 2016. "Financial stability risks from housing market cycles," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 79, pages 1-16, July.
    15. Alexander Raabe & Christiane Kneer, 2019. "Tracking Foreign Capital: The Effect of Capital Inflows on Bank Lending in the UK," IHEID Working Papers 10-2019, Economics Section, The Graduate Institute of International Studies.
    16. Kneer, Christiane & Raabe, Alexander, 2019. "Tracking foreign capital: the effect of capital inflows on bank lending in the UK," Bank of England working papers 804, Bank of England.
    17. Kim, Youngju & Lim, Hyunjoon, 2020. "Transmission of monetary policy in times of high household debt," Journal of Macroeconomics, Elsevier, vol. 63(C).
    18. Paulo Roberto Scalco & Benjamin M. Tabak & Anderson Mutter Teixeira, 2019. "The Dark Side of Prudential Measures," Working papers - Textos para Discussao do Curso de Ciencias Economicas da UFG 078, Curso de Ciencias Economicas da Universidade Federal de Goias - FACE.
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    22. Ricardo Correa & Teodora Paligorova & Horacio Sapriza & Andrei Zlate, 2018. "Cross-Border Bank Flows and Monetary Policy," International Finance Discussion Papers 1241, Board of Governors of the Federal Reserve System (U.S.).
    23. Tigran Poghosyan, 2019. "How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries," IMF Working Papers 19/45, International Monetary Fund.
    24. Dong He & Erlend Nier & Heedon Kang, 2016. "Macroprudential measures for addressing housing sector risks," BIS Papers chapters, in: Bank for International Settlements (ed.),Macroprudential policy, volume 86, pages 117-122, Bank for International Settlements.
    25. Bianchi, Benedetta, 2018. "Structural credit ratios," ESRB Working Paper Series 85, European Systemic Risk Board.

    More about this item

    Keywords

    Housing finance; Real estate; Macroprudential regulation; Financial stability; Credit booms;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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