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Credit conditions, macroprudential policy and house prices

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  • Kelly, Robert
  • McCann, Fergal
  • O’Toole, Conor

Abstract

We provide a micro-empirical link between the large literature on credit and house prices and the burgeoning literature on macroprudential policy. Using loan-level data on Irish mortgages originated between 2003 and 2010, we construct a measure of credit availability which varies at the borrower level as a function of income, wealth, age, interest rates and prevailing market conditions around Loan to Value ratios (LTV), Loan to Income ratios (LTI) and monthly Debt Service Ratios (DSR). We deploy a property-level house price model which shows that a ten per cent increase in credit available leads to an 1.5 per cent increase in the value of property purchased. Coefficients from this model are then used to fit values under scenarios of macroprudential restrictions on LTV, LTI and DSR on credit availability and house prices in Ireland during the 2003 to 2010 period. Our results suggest that macroprudential limits would have had substantial impacts on house prices, and that both the level at which they are set and the timing of their introduction is a crucial determinant of their impact on housing values.

Suggested Citation

  • Kelly, Robert & McCann, Fergal & O’Toole, Conor, 2018. "Credit conditions, macroprudential policy and house prices," Journal of Housing Economics, Elsevier, vol. 41(C), pages 153-167.
  • Handle: RePEc:eee:jhouse:v:41:y:2018:i:c:p:153-167
    DOI: 10.1016/j.jhe.2018.05.005
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    Cited by:

    1. Carpantier, Jean-Francois & Olivera, Javier & Van Kerm, Philippe, 2018. "Macroprudential policy and household wealth inequality," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 262-277.
    2. Kinghan, Christina & McCarthy, Yvonne & O'Toole, Conor, 2016. "The Effects of Macroprudential Policy on Borrower Leverage," Economic Letters 08/EL/16, Central Bank of Ireland.
    3. Bank for International Settlements, 2016. "Experiences with the ex ante appraisal of macroprudential instruments," CGFS Papers, Bank for International Settlements, number 56.
    4. repec:bis:bisifc:46-12 is not listed on IDEAS
    5. repec:bla:coecpo:v:37:y:2019:i:1:p:121-137 is not listed on IDEAS
    6. Nitzan Tzur-Ilan, 2018. "LTV Limits and Borrower Risk," Bank of Israel Working Papers 2018.12, Bank of Israel.
    7. Tatiana Cesaroni, 2018. "Average time to sell a property and credit conditions: evidence from the Italian Housing Market Survey," Working Papers LuissLab 18136, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    8. repec:onb:oenbfs:y:2017:i:33:b:1 is not listed on IDEAS
    9. John V. Duca & Lilit Popoyan & Susan M. Wachter, 2019. "Real Estate And The Great Crisis: Lessons For Macroprudential Policy," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 121-137, January.

    More about this item

    Keywords

    Mortgages; Credit availability; Macroprudential policy; House prices;

    JEL classification:

    • 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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