Drivers of the great housing boom‐bust: Credit conditions, beliefs, or both?

Cox, Josue; Ludvigson, Sydney C.

doi:10.1111/1540-6229.12303

Cited by 16 publications

(7 citation statements)

References 35 publications

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“…Studies have noted how bank credit supply contributed to the recent boom-bust housing cycle in the late 2000s. Cox and Ludvigson (2019) find that changes in credit supply are negatively correlated with loan quality changes between 2000 and 2010, and the decreases in loan quality could both explain for house price changes and predict them. Di Maggio and Kermani (2017) allege that the preemption rule in 2004, which exempted national banks from antipredatory lending laws in the U.S., contributed to the rise and fall of credit supply, house price and unemployment rate between 2004and 2007.…”

Section: Introductionmentioning

confidence: 83%

International Real Estate Review

Li¹,

Lai²

2021

IRER

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This paper is about investigating how different bank liquidity creation activities affect housing markets. Using data of 401 metropolitan statistical areas/metropolitan statistical area divisions (MSAs/MSADs) of the U.S. between 1990 and 2018, we show that not all bank liquidity creation activities boost the housing markets. In particular, unlike assetside and off- balance sheet liquidity creations, funding-side liquidity creation dampens housing markets. The relationships between liquidity creation activities and housing markets are stronger in regions with inelastic house supply, but flip when banks face external liquidity shocks. We also find that housing markets dominated by large banks are more sensitive to off-balance sheet liquidity creation activities. Finally, as expected, asset-side and off-balance sheet liquidity creations boost housing markets by driving house prices away from fundamental values. Our results offer a more thorough explanation of how bank liquidity creation fuels the momentum of housing markets.

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Section: Introductionmentioning

confidence: 83%

International Real Estate Review

Li¹,

Lai²

2021

IRER

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“…Basically, most lending institutions adjust interest rates to reflect the market value by less than 1%. Further, the author argues that the reason that banks increase interest rates by a small margin is to reduce default rate [5]. Cumming & Hubert also argues along the same line as Cox and Ludvigson, but he gives a different reason to validate his point.…”

Section: Prices Rise By a Small Marginmentioning

confidence: 97%

“…Certainly, paying $117 more every month would not push many potential buyers away. Indeed, high interest rates pose an extra burden to homebuyers, but not everyone feels the impact [5].…”

Section: Consumer Confidence and Home Buying Decisionsmentioning

confidence: 99%

“…The tactic helps individuals to lock in a lower interest rate, which would save them money on interest payments over the loan life. On the same note, there is stability and predictability in monthly payments associated with fixed-rate loans, which helps in budgeting [5]. However, the investor should analyze closing costs and origination fees to ensure that refinancing is indeed a cost-effective option.…”

Section: Refinancing Strategies In Rising Interest Rate Scenariosmentioning

confidence: 99%

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Real Estate Market Transformations: Insights and Implications for Canadian Investors and Consumers amid U.S. Interest Rate Adjustments

Jia

2024

HBEM

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The world is currently battling the economic costs of the high U.S. dollar interest rate since the cost of living has increased to an unaffordable level for most households, and the real estate market is one of the casualties. Therefore, it is critical to establish the options that real estate investors have that they could consider generating more revenue when the housing market proves unprofitable. The paper aims at assessing how the U.S. dollar interest rate hikes affects the real estate market. The study indicates that the future housing prices are relatively unpredictable; they could either increase significantly, increase by a small margin, or remain the same. In this regard, it is critical to advise real estate investors to venture into other investments where the rise in the U.S. dollar interest rates promises optimal gains, given that the housing market may not be so lucrative.

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“…These areas have amplified the degree of prosperity and depression of the real estate market, which was in line with the expectation of belief heterogeneity [ 19 , 20 ]. Some other scholars emphasized the important impact of loose monetary policy, cheaper credit and expectations of house prices from the perspective of home buyers’ characteristics and believed that the credit costs are the most important factor driving house price fluctuations [ 21 , 22 , 23 ].…”

Section: Literature Reviewmentioning

confidence: 99%

The Dynamic Relationship among Bank Credit, House Prices and Carbon Dioxide Emissions in China

Chen

Dong

Wang

et al. 2022

IJERPH

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This paper explores the dynamic relationship among bank credit, house prices and carbon dioxide emissions in China by systematically analyzing related data from January 2000 to December 2019 with the help of the time-varying parameter vector autoregression with stochastic volatility (TVP-SV-VAR) model and the Bayesian DCC-GARCH model. Empirical results show the expansion of bank credit significantly drives up house prices and increases carbon dioxide emissions in mosttimes. The rise in house prices inhibits the expansion of bank credit but increases carbon dioxide emissions and aggravates environment pollution, and that the increase in carbon dioxide is helpful to stimulate bank credit expansion and house price rise. In addition, bank credit and house prices are most relevant, followed by bank credit and carbon dioxide emissions, then by house prices and carbon dioxide emissions. Therefore, we believe that in order to stabilize skyrocketing house prices, restrain carbon dioxide emissions, and secure a stable and healthy macro-economy, the government should strengthen management of bank credit, and effectively control its total volume.

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Drivers of the great housing boom‐bust: Credit conditions, beliefs, or both?

Cited by 16 publications

References 35 publications

International Real Estate Review

International Real Estate Review

Real Estate Market Transformations: Insights and Implications for Canadian Investors and Consumers amid U.S. Interest Rate Adjustments

The Dynamic Relationship among Bank Credit, House Prices and Carbon Dioxide Emissions in China

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