Hostname: page-component-78c5997874-fbnjt Total loading time: 0 Render date: 2024-11-18T01:25:15.325Z Has data issue: false hasContentIssue false
  • English
  • Français

Comparing Housing Booms and Mortgage Supply in the Major OECD Countries

Published online by Cambridge University Press:  01 January 2020

Angus Armstrong  and
E. Philip Davis
Angus Armstrong*
Affiliation:
National Institute of Economic and Social Research
E. Philip Davis*
Affiliation:
National Institute of Economic and Social Research and Brunel University
*
E-mail: a.armstrong@niesr.ac.uk
E-mail: e_philip_davis@msn.com
Get access Rights & Permissions [Opens in a new window]

Abstract

The house price and lending boom of the 2000s is widely considered to be the main cause of the financial crisis that began in 2007. However, looking to the past, we find a similar boom in the late 1980s which did not lead directly to a global systemic banking crisis – there were widespread banking difficulties in the early 1990s but these were linked mainly to commercial property exposures. This raises the question whether the received wisdom is incorrect, and other factors than the housing boom caused the crisis, while macroprudential policy is overly targeted at the control of house prices and lending per se.

Accordingly, in this paper we compare and contrast the cycles in house prices over 1985–94 with 2002–11. There are more similarities than contrasts between the booms. Stylised facts include a similar rise in real house prices where booms took place, and a marked rise in the real mortgage stock along with real incomes. The aftermath periods are also comparable in terms of house price changes. Econometrically, determinants of house prices are similar in size and sign from the 1980s to date.

There remain some contrasts. Leverage rose far more in the later episode and did not contract in the aftermath. Mean reversion of house prices is greater in the earlier period. The earlier boom period showed differences with average house price behaviour which was not mirrored in the most recent boom and inflation was higher. Despite the contrasts, on balance we reject the idea that the recent boom was in some way unique and hence the key cause of the crisis. There is a need for further research to capture distinctive structural and conjunctural factors underlying the recent crisis which differ from the earlier boom and some suggestions are made.

Keywords

house price boomsmortgage stockhousing marketsC52E58G21
Type
Research Articles
Information
National Institute Economic Review , Volume 230 , November 2014 , pp. R3 - R15
Copyright
Copyright © 2014 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank John Muellbauer, anonymous referees and participants at the conference for helpful comments. Errors remain our own responsibility.

References

Adams, Z.Fuss, R. (2010), ‘Macroeconomic determinants of international house price cycles’, Journal of Housing Economics, 19, pp. 38–50.CrossRefGoogle Scholar
Agnello, L.Schuknecht, L. (2011), ‘Booms and busts in housing markets; determinants and implications’, Journal of Housing Economics, 26, pp. 171–90.Google Scholar
Allen, F.Gale, D. (2000), ‘Bubbles and crises’, The Economic Journal, 110 (460), pp. 236–55.CrossRefGoogle Scholar
Andrews, D. (2010), ‘Real house prices in OECD countries, the role of demand shocks and structural and supply factors’, OECD Economics Department Working Paper 831.Google Scholar
Aron, J.Muellbauer, J.Murphy, A. (2007), ‘Housing wealth, credit conditions and UK consumption’, Discussion Paper, Centre for Economic Policy Research, London.Google Scholar
Badev, A.Beck, T.Vado, L.Walley, S. (2014), ‘Housing finance across countries, new data and analysis’, World Bank Policy Research Working Paper 6756.CrossRefGoogle Scholar
Baltagi, B.H. (2005), Econometric Analysis of Panel Data, London, John Wiley.Google Scholar
Barrell, R.Davis, E.P.Fic, T.Holland, D.Kirby, S.Liadze, I. (2009), ‘Optimal regulation of bank capital and liquidity: how to calibrate new international standards’, FSA Occasional Paper No 38.Google Scholar
Barrell, R.Davis, P.Karim, D.Liadze, I., (2010), ‘Bank regulation, property prices and early warning systems for banking crises in OECD countries’, Journal of Banking and Finance, 34, pp. 2255–64.CrossRefGoogle Scholar
Barrell, R.Kirby, S.Whitworth, R. (2011), ‘Real house pices in the UK’, National Institute Economik Review, 216, F62.CrossRefGoogle Scholar
Benetrix, A.S.Eichengreen, B.O'Rourke, K.H. (2012), ‘How housing slumps end’, Economic Policy, pp. 648–92.CrossRefGoogle Scholar
Bernanke, B.S.Gertler, M. (1989), ‘Inside the Black Box: the credit channel of monetary policy transmission’, The Journal of Economic Perspectives, 9, pp. 27–48.CrossRefGoogle Scholar
Calza, A.Monacelli, T.Stracca, L. (2013), ‘Housing finance and monetary policy’, Journal of The European Economic Association, 11, pp. 101–22.CrossRefGoogle Scholar
Capozza, D.R.Hendershott, P.H.Mack, C.Mayer, C.J. (2002), ‘Determinants of real house price dynamics’, NBER Working Paper, 9262.CrossRefGoogle Scholar
Claessens, S.Kose, M.A.Terrones, M.E. (2011), ‘How do business and financial cycles interact?’, IMF Working Paper WP/11/88.CrossRefGoogle Scholar
Davis, E.P. (1995), Debt, Financial Fragility and Systemic Risk, Oxford University Press.CrossRefGoogle Scholar
Davis, E.P.Fic, T.M.Karim, D. (2011), ‘Housing market dynamics and macroprudential tools’, Brunel Economics and Finance Working Paper 11-07, and in RUTH, the Riksbank's Report on the Swedish Housing Market.Google Scholar
Davis, E.P.Liadze, I. (2012), ‘Modelling and simulating the banking sectors of the US, Germany and the UK’, NIESR Discussion Paper 396.Google Scholar
Davis, E.P.Zhu, H. (2011), ‘Bank lending and commercial property cycles: some cross-country evidence’, Journal of International Money and Finance, 30, pp. 1–21.CrossRefGoogle Scholar
Dokko, J.Doyle, B.M.Kiley, M.T.Kim, J.Sherland, S.Sim, J.Van Den Hewel, S. (2011), ‘Monetary policy and house prices’, Economic Policy, April, pp. 237–87.Google Scholar
Engle, R.F.Granger, C.W.J. (1987), ‘Co-integration and error correction: representation, estimation and testing’, Econometrica, 55, pp. 251–76.CrossRefGoogle Scholar
Fernandez-Corugedo, E.Muellbauer, J. (2006), ‘Consumer credit conditions in the United Kingdom’, Bank of England working papers 314, Bank of England.CrossRefGoogle Scholar
Gattini, L.Hiebert, P. (2010), ‘Forecasting and assessing Euro Area house prices through the lens of key fundamentals’, ECB Working Paper Series, No 1429/ October 2010.Google Scholar
Gimeno, R.Martinez-Carrascal, C. (2010), ‘The relationship between house prices and house purchase loans, the Spanish case’, Journal of Banking and Finance, 34, pp. 1849–55.CrossRefGoogle Scholar
Hendershott, P. (1994), ‘Housing finance in the United States’ in Noguchi, Y.Poterba, J., (eds), Housing Markets in the US and Japan, University of Chicago Press.Google Scholar
Hendry, D.F. (1984), ‘Econometric modelling of house prices in the United Kingdom’ in Hendry, D.F.Wallis, K.F. (eds), Econometrics and Quantitative Economics, Oxford, Basil Blackwell, pp. 135–72.Google Scholar
Holly, S.Pesaran, H.M.Yamagata, T. (2010), ‘Spatial and temporal diffusion of house prices in the UK’, Journal of Urban Economics, 69, 1, pp. 2–23.CrossRefGoogle Scholar
Hott, C.Monnin, P. (2008), ‘Fundamental real estate prices: an empirical estimation with international data’, The Journal of Real Estate Finance and Economics, 36, 4, pp. 427–50.CrossRefGoogle Scholar
Igan, D.Loungini, P. (2012), ‘Global house price cycles’, IMF Working Paper WP/12/217.CrossRefGoogle Scholar
IMF (2008a), ‘Housing and the business cycle’, World Economic Outlook, April 2008, Washington DC., International Monetary Fund.Google Scholar
IMF (2008b), World Economic Outlook Fall 2008, Washington DC., International Monetary Fund.Google Scholar
Kao, C. (1999), ‘Spurious regression and residual-based tests for cointegration in panel data’, Journal of Econometrics, 90, pp. 1–44.CrossRefGoogle Scholar
Kemme, D.M.Roy, S. (2012), ‘Did the recent housing boom signal the global financial crisis?’, Southern Economic Journal, 78, pp. 999–1018.CrossRefGoogle Scholar
Kyotaki, N.Moore, J. (1997), ‘Credit cycles’, Journal of Political Economy, 105, pp. 211–48.Google Scholar
Lindner, F. (2014), ‘The interaction of mortgage credit and housing prices in the US’, Working paper 133, Macroeconomic Policy Institute, Duesseldorf.Google Scholar
Meen, G. (2002), ‘The time series behaviour of house prices: a transatlantic divide?’, Journal of Housing Economics, 11, pp. 1–23.CrossRefGoogle Scholar
Miles, D. (2012), ‘Population density, house prices and mortgage design’, Scottish Journal of Political Economy, 59, pp. 444–66.CrossRefGoogle Scholar
Miles, D.Pillonca, V. (2008), ‘Financial innovation and European housing and mortgage markets’, Oxford Review of Economic Policy, 24(1), pp. 145–75.CrossRefGoogle Scholar
Muellbauer, J.Murphy, A. (1997), ‘Booms and busts in the UK housing market’, Economic Journal, 107, 445, pp. 1701–27.CrossRefGoogle Scholar
Muellbauer, J.Murphy, A. (2008), ‘Housing markets and the economy: the assessment’, Oxford Review of Economic Policy, 24, 1, pp. 1–33.CrossRefGoogle Scholar
OECD (2000), OECD Economic Outlook, Paris, Organisation for Economic Cooperation and Development.Google Scholar
OECD (2005), ‘Recent house price developments, the role of fundamentals’, OECD Economic Outlook, 78, pp. 123–54.Google Scholar
Ortalo-Magne, F.Rady, S. (1999), ‘Boom in, bust out, young households and the housing price cycle’, European Economic Review, 43, pp. 755–66.CrossRefGoogle Scholar
Shiller, R. (2007), ‘Understanding recent trends in house prices and home ownership’, NBER Working Papers 13553, National Bureau of Economic Research, Inc.Google Scholar
Tsatsaronis, K.Zhu, H. (2004), ‘What drives house price dynamics, cross country comparison’, BIS Quarterly Review, March.Google Scholar