IDEAS home Printed from https://ideas.repec.org/a/bla/reesec/v49y2021i3p843-875.html
   My bibliography  Save this article

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

Author

Listed:
  • Josue Cox
  • Sydney C. Ludvigson

Abstract

Two potential driving forces of house price fluctuations are commonly cited: credit conditions and beliefs. We posit some simple empirical calculations using direct measures of credit conditions and beliefs to consider their potentially distinct roles in house price fluctuations at the aggregate level. Changes in credit conditions are positively related to the fraction of riskier nonconforming debt in total mortgage lending, while measures of beliefs are unrelated to this ratio. Credit conditions explain quantitatively large magnitudes of the variation in quarterly house price growth and also predict future house price growth. Beliefs bear some relation to contemporaneous house price growth but have little predictive power. A structural vector autoregression analysis implies that exogenous changes in credit conditions have quantitatively important dynamic causal effects on house price changes.

Suggested Citation

  • Josue Cox & Sydney C. Ludvigson, 2021. "Drivers of the great housing boom‐bust: Credit conditions, beliefs, or both?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(3), pages 843-875, September.
    • Handle: RePEc:bla:reesec:v:49:y:2021:i:3:p:843-875
    DOI: 10.1111/1540-6229.12303
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1540-6229.12303
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1540-6229.12303?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Cindy K Soo, 2018. "Quantifying Sentiment with News Media across Local Housing Markets," The Review of Financial Studies, Society for Financial Studies, vol. 31(10), pages 3689-3719.
    2. Jack Favilukis & Sydney C. Ludvigson & Stijn Van Nieuwerburgh, 2017. "The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk Sharing in General Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 140-223.
    3. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    4. Tim Landvoigt & Monika Piazzesi & Martin Schneider, 2015. "The Housing Market(s) of San Diego," American Economic Review, American Economic Association, vol. 105(4), pages 1371-1407, April.
    5. Martin Schneider & Monika Piazzesi, 2009. "Momentum traders in a search model of the housing market," 2009 Meeting Papers 1266, Society for Economic Dynamics.
    6. Iacoviello, Matteo & Pavan, Marina, 2013. "Housing and debt over the life cycle and over the business cycle," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 221-238.
    7. Nuriddin Ikromov & Abdullah Yavas, 2012. "Asset Characteristics and Boom and Bust Periods: An Experimental Study," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 40(3), pages 603-636, September.
    8. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, March.
    9. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-137, March.
    10. Daniel Greenwald & Adam Guren, 2019. "Do Credit Conditions Move House Prices?," 2019 Meeting Papers 1334, Society for Economic Dynamics.
    11. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    12. Greg Kaplan & Kurt Mitman & Giovanni L. Violante, 2020. "The Housing Boom and Bust: Model Meets Evidence," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3285-3345.
    13. Monika Piazzesi & Martin Schneider, 2009. "Momentum Traders in the Housing Market: Survey Evidence and a Search Model," American Economic Review, American Economic Association, vol. 99(2), pages 406-411, May.
    14. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1449-1496.
    15. Mertens, Karel & Ravn, Morten O., 2014. "A reconciliation of SVAR and narrative estimates of tax multipliers," Journal of Monetary Economics, Elsevier, vol. 68(S), pages 1-19.
    16. Sommer, Kamila & Sullivan, Paul & Verbrugge, Randal, 2013. "The equilibrium effect of fundamentals on house prices and rents," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 854-870.
    17. Carlos Garriga & Aaron Hedlund, 2020. "Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession," American Economic Review, American Economic Association, vol. 110(6), pages 1603-1634, June.
    18. Manuel Adelino & Antoinette Schoar & Felipe Severino, 2016. "Editor's Choice Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class," The Review of Financial Studies, Society for Financial Studies, vol. 29(7), pages 1635-1670.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guangyang Chen & Kai Dong & Shaonan Wang & Xiuli Du & Ronghua Zhou & Zhongwei Yang, 2022. "The Dynamic Relationship among Bank Credit, House Prices and Carbon Dioxide Emissions in China," IJERPH, MDPI, vol. 19(16), pages 1-18, August.
    2. Margaret Jacobson, 2019. "Beliefs, Aggregate Risk, and the U.S. Housing Boom," 2019 Meeting Papers 1549, Society for Economic Dynamics.
    3. Choi, Chi-Young & Hansz, J. Andrew, 2021. "From banking integration to housing market integration - Evidence from the comovement of U.S. Metropolitan House Prices," Journal of Financial Stability, Elsevier, vol. 54(C).
    4. Tom Cusbert, 2023. "The Effect of Credit Constraints on Housing Prices: (Further) Evidence from a Survey Experiment," RBA Research Discussion Papers rdp2023-01, Reserve Bank of Australia.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1547-1640, Elsevier.
    2. Josue Cox & Sydney C. Ludvigson, 2018. "Drivers of the Great Housing Boom-Bust: Credit Conditions, Beliefs, or Both?," NBER Working Papers 25285, National Bureau of Economic Research, Inc.
    3. Eunseong Ma & Sarah Zubairy, 2021. "Homeownership And Housing Transitions: Explaining The Demographic Composition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 599-638, May.
    4. Daniel I. García, 2022. "Second‐home buying and the housing boom and bust," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(1), pages 33-58, March.
    5. Ma, Xutao & Zhang, Zhen, 2022. "Expectations, credit conditions, and housing boom-bust: Evidence from SVAR with sign and zero restrictions," Journal of Banking & Finance, Elsevier, vol. 134(C).
    6. Daniel L. Tortorice, 2019. "Long-Run Expectations, Learning and the US Housing Market," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(4), pages 497-531, October.
    7. Margaret Jacobson, 2019. "Beliefs, Aggregate Risk, and the U.S. Housing Boom," 2019 Meeting Papers 1549, Society for Economic Dynamics.
    8. Diamond, William & Landvoigt, Tim, 2022. "Credit cycles with market-based household leverage," Journal of Financial Economics, Elsevier, vol. 146(2), pages 726-753.
    9. Krivenko, Pavel, 2023. "The Role of Moving Shocks, Unemployment, and Policy in Understanding Housing Bust," Journal of Banking & Finance, Elsevier, vol. 154(C).
    10. Charles Ka Yui LEUNG, 2022. "Housing and Macroeconomics," ISER Discussion Paper 1197, Institute of Social and Economic Research, Osaka University.
    11. DeFusco, Anthony A. & Nathanson, Charles G. & Zwick, Eric, 2022. "Speculative dynamics of prices and volume," Journal of Financial Economics, Elsevier, vol. 146(1), pages 205-229.
    12. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 753-811, Elsevier.
    13. Jørgensen, Peter Lihn, 2023. "The global savings glut and the housing boom," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    14. Arigoni, Filippo & McCann, Fergal & Yao, Fang, 2022. "Mortgage credit and house prices: evidence to inform macroprudential policy," Financial Stability Notes 11/FS/22, Central Bank of Ireland.
    15. Cao, Yujin & Chen, Jidong & Zhang, Qinghua, 2018. "Housing investment in urban China," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 212-247.
    16. Jaccard, Ivan, 2021. "Leveraged property cycles," Working Paper Series 2539, European Central Bank.
    17. Alessia De Stefani, 2021. "House price history, biased expectations, and credit cycles: The role of housing investors," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(4), pages 1238-1266, December.
    18. Charles Ka Yui Leung & Joe Cho Yiu Ng, 2018. "Macro Aspects of Housing," GRU Working Paper Series GRU_2018_016, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    19. Guangyang Chen & Kai Dong & Shaonan Wang & Xiuli Du & Ronghua Zhou & Zhongwei Yang, 2022. "The Dynamic Relationship among Bank Credit, House Prices and Carbon Dioxide Emissions in China," IJERPH, MDPI, vol. 19(16), pages 1-18, August.
    20. Guo, Zi-Yi, 2017. "Information heterogeneity, housing dynamics and the business cycle," EconStor Preprints 168561, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:reesec:v:49:y:2021:i:3:p:843-875. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/areueea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.