Credit conditions, macroprudential policy and house prices

Kelly, Robert J.; McCann, Fergal; O’Toole, Conor

doi:10.1016/j.jhe.2018.05.005

Cited by 72 publications

(44 citation statements)

References 39 publications

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“…All in all, our work suggests that macro-prudential policies (in particular, housing finance regulation) might shield against the deleterious macroeconomic impact of housing busts and financial stability risks posed by housing booms (Arslan et al 2015a;Rubio and Carrasco-Gallego 2017;Kelly et al 2017). Additionally, it emphasizes the role that monetary policy can play, namely, by affecting interest rates and avoiding (or reducing) the likelihood of housing booms (Arslan 2014;Chen et al 2014).…”

Section: Discussionmentioning

confidence: 70%

“…Spain and the rest of the European Monetary Union (EMU)), two-sector DSGE model with housing that reveals that: (i) loose credit conditions associated with a rise in housing demand propel housing booms; and (ii) macro-prudential policies (in the form of countercyclical loan-to-value (LTV) rules reacting to deviations of house prices and output from their steady states) could have avoided financial crises triggered by excessive credit growth. Kelly et al (2017) analyze the relationship between credit and house prices and macro-prudential policy through a micro-empirical lens. The authors use loan-level data to build a measure of credit availability that varies as a function of borrower's age, income, interest rates and wealth, and market conditions concerning debt service ratios (DSR), loan-toincome ratios (LTI) and loan-to-value ratios (LTV).…”

Section: Review Of the Literaturementioning

confidence: 99%

“…Third, we investigate the impact of government participation in housing finance on the length of the housing booms and busts. These issues are particularly important, as they help understanding the role that macroprudential policy can play as a line of defense vis-à-vis housing boom-bust cycles (Kannan et al 2012;Arslan et al 2015a;Rubio and Carrasco-Gallego 2017;Kelly et al 2017). They also shed light on the optimal mix of policies -that is, the potential complementarity between monetary policy and housing finance regulation -as a way of effectively handling housing market imbalances that create financial stability risks (Rubio and Carrasco-Gallego 2014;Bailliu et al 2015;Falagiarda and Saia 2017;Gelain and Ilbas 2017;Arslan and Upper 2017).…”

Section: Review Of the Literaturementioning

confidence: 99%

See 2 more Smart Citations

The Housing Cycle: What Role for Mortgage Market Development and Housing Finance?

Agnello

Castro

Sousa

2019

J Real Estate Finan Econ

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We use duration analysis to assess the impact of securitization, mortgage sector liberalization and government involvement in housing finance on the length of housing booms, busts and normal times in a panel of 20 OECD countries over the period 1970Q1-2015Q4. Our results reveal that a move towards a more liberalized mortgage sector is associated with longer housing booms, while an increase in securitization is linked with shorter housing busts. They also show that the length of housing booms and busts is particularly sensitive to housing finance characteristics, but that does not seem to be the case for normal times. Additionally, government support measures do not necessarily cushion against housing busts. A careful assessment of their distributional impact, as well as their effect on the trade-off between liquidity and guarantee/loan provision, is also required to prevent (longer) housing booms. All in all, housing finance regulation may prove especially relevant to shield against the damaging effects of housing busts and the financial stability risks associated with housing booms. Monetary policy can also be an important complement to macro-prudential policies. Finally, government participation in housing finance should be designed in a way that avoids an undesirable amplification of house price fluctuations.

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Section: Discussionmentioning

confidence: 70%

Section: Review Of the Literaturementioning

confidence: 99%

Section: Review Of the Literaturementioning

confidence: 99%

See 1 more Smart Citation

The Housing Cycle: What Role for Mortgage Market Development and Housing Finance?

Agnello

Castro

Sousa

2019

J Real Estate Finan Econ

View full text Add to dashboard Cite

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“…Beside the panel analyses, country-specific analyses are now growing abundant for the U.S. (Berger andBouwman, 2013, Carlson et al, 2013), Hong-Kong (Craig and Hua, 2011), Spain (Jimenez et al, 2013), the U.K. (Aiyar et al, 2012), Korea (Igan and Kang, 2011), Ireland (Kelly et al, 2015) the Netherlands (Verbruggen et al, 2015) and France (Dietsch andWelter-Nicol, 2014, Avouyi-Dovi et al, 2014). Two preliminary conclusions emerge from these empirical studies.…”

Section: Review Of Literaturementioning

confidence: 99%

Macroprudential Policy and Household Wealth Inequality

2017

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Macroprudential policies, such as caps on loan-to-value (LTV) ratios, have become part of the policy paradigm in emerging markets and advanced countries alike. Given that housing is the most important asset in household portfolios, relaxing or tightening access to mortgages may affect the distribution of household wealth in the country. In a stylised model we show that the final level of wealth inequality depends on the size of the LTV ratio, housing prices, credit cost and the strength of a bequest motive; ultimately with no unequivocal effect of LTV ratios on wealth inequality. These trade-offs are illustrated with estimations of "Gini Recentered Inuence Function" regressions on household survey data from 12 eurozone countries that participated in the first wave of the Household Finance and Consumption Survey (HFCS). The results show that, among the households with active mortgages, high LTV ratios at the time of acquisition are related to high contributions to wealth inequality today, while house price increases are negatively related to inequality contributions. A proxy for the strength of bequest motives tends to be negatively related with wealth inequality, but credit cost does not show a significant link to the distribution of wealth.

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“…In some countries that experienced severe downturns, such as Ireland and Spain, the demand for real estate was bolstered not only by low mortgage interest rates, but also by an excessive easing of credit standards via either making too many loans with explicitly high LTVs (e.g., Ireland-see Kelly et al 2015) or circumventing covered bond caps on the LTVs of mortgages by substituting inflated appraised prices for actual transactions prices (as in Spain) or by avoiding regulatory limits on banks by lending through less regulated depositories (e.g., cajas in Spain). 1 The resulting high prices triggered building booms that later expanded supply during the house price bust that ultimately worsened loan losses and crippled financial systems.…”

Section: Macro-prudential Lessons Learned From the Great Recessionmentioning

confidence: 99%

Real Estate and the Great Crisis: Lessons for Macro-Prudential Policy

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractFrom a broad macro-financial structure perspective, overly easy credit conditions gave rise to house price booms and busts in several advanced economies (e.g., Ireland, Spain, and the U.S.), and, more specifically in the U.S., an underpricing of risk made possible by regulatory arbitrage and shadow financing fueled the credit and twin real estate bubbles of the mid2000s. Across countries and over time bubbles have been particularly acute in real estate markets reflecting not only the relatively inelastic supply of land and thin trading of real estate, but also the amplification of shocks via backward-looking price expectations and the funding of consumption off distorted and elevated prices. The macro-prudential lessons from the Great Crisis highlight the need to prevent the build-up of excess real estate financing and limit the amplification and correlation of real estate risks. And progress has been made in each of these areas through imposing tougher or new restrictions on the choice sets of lenders or of borrowers, with particulars varying across advanced economies. While regulatory reform of banking is going forward, significant challenges remain especially in dealing with correlated risks associated with securitization.

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Credit conditions, macroprudential policy and house prices

Cited by 72 publications

References 39 publications

The Housing Cycle: What Role for Mortgage Market Development and Housing Finance?

The Housing Cycle: What Role for Mortgage Market Development and Housing Finance?

Macroprudential Policy and Household Wealth Inequality

Real Estate and the Great Crisis: Lessons for Macro-Prudential Policy

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