Housing Finance and Real-Estate Booms: A Cross-Country Perspective

Cerutti, Eugenio; Dagher, Jihad; Dell’Ariccia, Giovanni

doi:10.5089/9781513571393.006

Cited by 69 publications

(31 citation statements)

References 31 publications

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“…Huber () provides further evidence on this relation based on turning point analysis for a sample of 18 OECD countries. The study confirms that home ownership rates are a key determinant of cross‐country differences, being more important than characteristics of mortgage markets such as loan‐to‐value and mortgage‐to‐GDP ratios (see also Cerutti, Dagher, & Dell'Ariccia, ).…”

Section: Resultssupporting

confidence: 67%

Business, housing, and credit cycles

Rünstler

Vlekke

2017

J of Applied Econometrics

120

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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. Note: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. Terms of use: Documents in AbstractWe use multivariate unobserved components models to estimate trend and cyclical components in GDP, credit volumes and house prices for the U.S. and the five largest European economies. With the exception of Germany, we find large and long cycles in credit and house prices, which are highly correlated with a medium-term component in GDP cycles. Differences across countries in the length and size of cycles appear to be related to the properties of national housing markets. The precision of pseudo real-time estimates of credit and house price cycles is roughly comparable to that of GDP cycles. Studies have so far mostly used univariate non-parametric methods, i.e. band-pass filters and turning point analysis, to extract financial cycles. These methods require a priori assumptions on cyclical characteristics and are applied separately to each series. They are therefore not particularly suitable for assessing cyclical co-movements and evaluating the cyclical stance in real-time.Multivariate STSMs do not suffer from these shortcomings. We propose various modifications of the standard STSM to jointly model the cyclical dynamics in GDP and the financial series.In line with earlier studies, we find pronounced cycles in credit and house prices with a length of 12 to 18 years in most cases. There also arise important differences across countries. We find cycles to be particularly long and large for the U.K. and Spain, of more moderate length and size for the U.S., Italy, and France, and comparatively short and small for Germany. These differences turn out to be related to a specific structural characteristic of national housing markets: cycles are longer and larger for countries with high rates of private home ownership.Moreover, financial cycles are closely related to a medium-term component in the GDP cycle.More precisely, the multivariate estimates emphasize the presence of medium-term fluctuations in GDP, which are longer than the traditional business cycle (3 to 8 years). We find high correlations between the financial and GDP cycles in the medium term, but more moderate correlations over the business cycle. While previous studies have documented that peaks and troughs in financial cycles coincide with major turning points in ...

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Section: Resultssupporting

confidence: 67%

Business, housing, and credit cycles

Rünstler

Vlekke

2017

J of Applied Econometrics

120

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“…Housing affordability reflects the purchasing power of a representative household, which is largely determined by the mortgage component, as households finance their house purchases with a large fraction of debt (see e.g., Cerutti et al . () for an overview of the maximum observed LTV ratios in an international sample of countries). A readily available indicator that accounts for the current interest rate environment (i.e.…”

Section: Methodsmentioning

confidence: 99%

A Novel Housing Price Misalignment Indicator for Germany

Hertrich

2019

German Economic Review

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From 2014 until present, housing prices in Germany have been rising faster than consumer prices in all quarters except one, raising concerns about an excessive overheating of the housing market. To assess the vulnerability of the German housing market to a future realignment of prices or even a housing bust, this paper develops a housing price misalignment indicator that is composed of seven indicators, which are commonly associated with the fundamental value of residential property. An empirical application to the most recent data suggests that the German housing market exhibits an overvaluation of approximately 11%, where interest rate risk and a relatively advanced stage of the housing cycle are identified as the main factors fueling these imbalances, while a rather solid debt‐servicing capacity mitigates these imbalances since end‐2009.

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“…Finally, we add a set of institutional and housing market characteristics proposed by Cerutti, Dagher, and Dell'Ariccia (). Specifically, we use information on loan‐to‐value caps and the legal rights index.…”

Section: Methods and Datamentioning

confidence: 99%

Determinants of housing bubbles' duration in OECD countries

Amador-Torres

Gómez-González

Sanín-Restrepo

2018

International Finance

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We study the determinants of housing price bubbles' duration for a set of OECD countries between 1970 and 2015. Our topic of study is of major importance, as duration is a proxy for other dimensions, such as the magnitude of bubbles, the extent of macroeconomic imbalances, and the chance that a rational bubble turns into an irrational one. We answer two related questions: (i) Does prolonged domestic monetary‐policy easing increase the duration of housing price bubbles? (ii) Does prolonged monetary‐policy easing in the United States influence the housing bubbles' duration in other OECD countries? We show that the answer to the first question is a clear yes but that the answer to the second question is not as clear. Our main result is that monetary‐policy tightening can accelerate the termination of a housing bubble. In this sense, our findings provide support for ‘leaning against the wind’ policies.

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Housing Finance and Real-Estate Booms: A Cross-Country Perspective

Abstract: , and many IMF staff for helpful suggestions and help in the collection of data. Andreas Schaab and Yangfan Sun (data and coding) and Helen Hwang (editing) provided excellent assistance.

Cited by 69 publications

References 31 publications

Business, housing, and credit cycles

Business, housing, and credit cycles

A Novel Housing Price Misalignment Indicator for Germany

Determinants of housing bubbles' duration in OECD countries

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