The Loan to Value Ratio for Housing in Spain Over the Period 2004-2016

Bover, Olympia; Torrado, María; Villanueva, Ernesto

doi:10.2139/ssrn.3333102

Cited by 5 publications

(3 citation statements)

References 3 publications

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“…De facto easings of credit standards also matter. For example, in Spain, over two-thirds of homes were appraised at purchase at prices above the transactions price (Bover et al , 2019) and some lenders used over-inflated house appraisals to circumvent an 80 per cent LTV cap on mortgages to be eligible for lenders to fund by issuing covered bonds (Mayordomo et al , 2019). In addition, less well-regulated Spanish lenders ― mainly cajas – tended to make riskier loans.…”

Section: Drivers Of House Price Cyclesmentioning

confidence: 99%

Making sense of increased synchronization in global house prices

Duca

2020

JERER

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Purpose The purpose of this paper is to provide perspective on whether and why global metro house prices have become more synchronized, and perspective on the limited implications of this for investing in international real estate. Design/methodology/approach This paper reviews main findings from the literature on house price determination, reviews the emerging literature on global synchronization, and provides graphs to illustrate main points and trends. Findings House prices have become somewhat more synchronized likely reflecting greater correlation in long-term interest rates and macroeconomic cycles related to trends in globalization and international portfolio diversification. Nevertheless, this trend has not been continuous, reflecting that house prices depend on other fundamentals, which are not uniform across areas. Theory and evidence indicate that the more common are fundamentals, the more synchronized are house price cycles and the more substitution effects may matter. Also, real estate markets that are open to immigration and foreign investment have become more sensitive to shifts in the international demand for property by migrants or investors. Research limitations/implications Changes in international house price synchronization stem from variation in two categories of key drivers of house prices. The first are traditional supply and demand fundamentals. The second include international capital flows and immigration. Both sets of factors are sensitive to the economic environment and public policy. Increased synchronization of business cycles, the Euro currency union, and more common monetary policy strategies and tactics have fostered greater correlation of real interest rates across countries, which tend to increase house price synchronization. These effects can be amplified by the tendency for property owners to use extrapolative expectations of future house prices. Practical implications Shifts in prospective returns and the synchronization of international property returns not only on arbitrage of general property price differentials but also on underlying factors driving those differentials. Investors need to be mindful of the risks that metro prices sometimes reflect bubble-builder dynamics that can give rise to over-shooting of house prices. Observing simple correlations and changes in those correlations does not do away with the need for careful analysis of property investment, and if anything, warrant analysis of both how and why one may observe changes in the extent to which international house prices is synchronized. Social implications Despite the rise of globalization and of new technologies, the author has seen substantial divergences in house prices emerge across gateway cities and metros in less vibrant areas within countries. These reflect not only the impact of stronger income and population in more tech, educated and global oriented cities but also changes in the demand for amenities toward more culturally appealing cities, often – but not exclusively in – warmer or coastal areas where the supply elasticity of housing is often limited. Further complicating investment decisions are potential shifts in housing or immigration policy that can notably affect the demand for housing. Originality/value The paper provides practical perspective on why different groups of international cities have seen their house prices become more sychronized. Nevertheless, increased synchronization has occurred within an elite set of major cities, but in an environment house prices have diverged across gateway cities and metros in less vibrant areas within countries. The paper helps investors make sense of some recent patterns and recent prospects for investing in international real estate.

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Section: Drivers Of House Price Cyclesmentioning

confidence: 99%

Making sense of increased synchronization in global house prices

Duca

2020

JERER

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“…Manually performed (human) appraisals may be subject to bias, as reported by a growing number of studies in this area (Agarwal et al, 2014a;Calem, Lambie-Hanson and Nakamura, 2015;Montalvo and Raya, 2018;Nakamura, 2010). In the descriptive analysis, we find an overappraisal of approximately 30%, which was a typical value during the Spanish boom (Akin et al, 2014;Bover et al, 2019;Montalvo and Raya, 2018). A higher appraisal implies a lower markup and a lower LTV.…”

Section: Figure 1 Kernel Density Of Markupsmentioning

confidence: 69%

“…These incentives contribute to the possibility that the appraisal price of a house can be significantly higher than its true value. The prevalence of overappraisals documented during the boom years in Spain (Akin et al, 2014;Bover, Torrado and Villanueva, 2019) underscores this tendency. In fact, appraisal prices are more affected by financial conditions and overappraisal is used as a mechanism to circumvent financial regulations (Montalvo and Raya, 2018).…”

Section: Introductionmentioning

confidence: 95%

Evaluating Different Housing Prices: Marketing and Financial Distortions

Raya¹

2021

IRER

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The aim of this paper is to evaluate the importance of housing price. We compare the evolution of three different types of housing prices (list, sale and appraisal prices). The objective is to see the marketing and financial consequences of using each type of housing price. To do this, a dataset of a real estate company and its financial intermediary with all of these types of housing prices is used. We estimate econometric models in which the dependent variables are: price (appraisal, selling or list), mark-up, loan to value and foreclosures. The results show evidence of the consequences of using a specific housing price in terms of inflation calculation, financial assets, and collateral valuation and mortgage default, among others.

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Beyond the LTV Ratio: Lending Standards, Regulatory Arbitrage, and Mortgage Default

Galán¹,

Lamas²

2023

J of Money Credit Banking

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Booming house prices are historically correlated with loose lending standards. Nonetheless, in Spain the loan‐to‐value (LTV) ratio failed to capture imbalances during the last housing boom. Using loan‐level data from millions of mortgages we show that inflated collateral valuations, used by banks as a mechanism to circumvent regulation, distorted the informative value of LTV, and masked the accumulation of risk. We identify that regulation relying upon a single measure is more prone to suffer from regulatory arbitrage, and that the optimal policy mix varies over the financial cycle. Overall, our study provides useful insights for the implementation of borrower‐based measures.

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The Loan to Value Ratio for Housing in Spain Over the Period 2004-2016

Cited by 5 publications

References 3 publications

Making sense of increased synchronization in global house prices

Making sense of increased synchronization in global house prices

Evaluating Different Housing Prices: Marketing and Financial Distortions

Beyond the LTV Ratio: Lending Standards, Regulatory Arbitrage, and Mortgage Default

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