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The causal effect of house prices on mortgage demand and mortgage supply: evidence from Switzerland

Listed author(s):
  • Christoph Basten
  • Catherine Koch

We identify the causal effect of house prices on mortgage demand and supply in Switzerland by exploiting exogenous shocks to immigration and thereby to house prices. Detailed micro data on individual requests and offers allow to close down possible other channels. We find that within the same interest rate environment 1% higher house prices imply 0.52% higher mortgage amounts. The full partial correlation of 0.78% suggests also positive feedback from mortgage volumes to house prices. While we find higher house prices to increase mortgage demand, banks respond if anything with fewer offers and higher rates, especially later in the boom and for highly leveraged households.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 555.

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Length: 52 pages
Date of creation: Mar 2016
Handle: RePEc:bis:biswps:555
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