2011
DOI: 10.1111/j.1475-4932.2011.00762.x
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House Prices, Credit and Willingness to Lend

Abstract: Abstract. This paper establishes a Tobin's q model in which house prices fluctuate around their long run equilibrium due to fluctuations in credit availability and income. It is shown that house prices are positively related to credit in the short run, however, negatively related to the availability of credit in the long run. Using survey data on banks' willingness to lend and data on disintermediation for the U.S. over a long period and for nine OECD countries over a short period it is shown that the availabi… Show more

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Cited by 10 publications
(4 citation statements)
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“…For simplicity, « is assumed to be given, noting that there is no well-developed theory of its determinants. « is likely to depend on bank's willingness to lend, which in turn depends on monetary policies, bank regulations, past house prices, and economic prospects (see for a discussion, Carrington and Madsen, 2011;Stiglitz and Weiss, 1981). Bank regulations can influence a bank's lending through its liability side.…”
Section: Demand For Housesmentioning
confidence: 98%
See 1 more Smart Citation
“…For simplicity, « is assumed to be given, noting that there is no well-developed theory of its determinants. « is likely to depend on bank's willingness to lend, which in turn depends on monetary policies, bank regulations, past house prices, and economic prospects (see for a discussion, Carrington and Madsen, 2011;Stiglitz and Weiss, 1981). Bank regulations can influence a bank's lending through its liability side.…”
Section: Demand For Housesmentioning
confidence: 98%
“…Following the predictions of the repayment model, in which principal repayments and interest rates on variable interest loans are also influential for house prices, the recent reliance on interest-rate-only loans and variable-interest-rate loans would potentially also have fueled the recent house price run up. The easier access to credit during the latest run-up in the housing market has reduced down payments and fueled house prices (Carrington and Madsen, 2011).…”
Section: The House Price Run-up In the Period 1995-2007mentioning
confidence: 99%
“…In the housing market, mortgage interest rates not only indicate the cost of financing but also reflect the availability of credit. Carrington and Madsen () further indicate the important influence of banks' WTL on real estate. For a measure of credit availability, we use the interest rate spread between reference lending and house loans as a proxy of WTL on real estate.…”
Section: Robustnessmentioning
confidence: 99%
“…However, despite nearly universal downturns, Australian house prices have remained relatively stable. This is notwithstanding high homeowner debt ratios, house price-to-income ratios of more than double that of thoseintheUSAatthepeakoftheirhousingbubbleinthe larger capital cities and slowing economic growth (Muellbauer & Murphy, 2008;Carrington & Madsen, 2011;Fox & Finlay, 2012;McLaughlin, 2012).…”
Section: Introductionmentioning
confidence: 99%