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Boom-Bust Cycles in Housing: The Changing Role of Financial Structure

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  • Mr. Calvin Schnure

Abstract

Why are housing markets so prone to boom-bust cycles? The mortgage market structure prior to the Savings and Loan crisis contributed to the volatility in real housing activity which, in turn, amplified the volatility in housing prices. The subsequent development of a national, market-based system of securitized mortgage finance has damped this boom-bust cycle. We test whether deviations of actual housing prices from values forecast by a model based on economic fundamentals have responded to the change in financial structure, and find that pricing errors have fallen significantly since the mid-1980s. Tests of the relative importance of the change in financial market structure versus the reduction of inflation over this period indicate a primary role for market structure in improving pricing efficiency.

Suggested Citation

  • Mr. Calvin Schnure, 2005. "Boom-Bust Cycles in Housing: The Changing Role of Financial Structure," IMF Working Papers 2005/200, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/200
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    References listed on IDEAS

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    Cited by:

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    3. Lúðvík Elíasson, 2017. "Icelandic boom and bust: immigration and the housing market," Housing Studies, Taylor & Francis Journals, vol. 32(1), pages 35-59, January.
    4. Alejandro Justiniano & Giorgio E. Primiceri, 2008. "The Time-Varying Volatility of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 98(3), pages 604-641, June.
    5. Huseyin Karamelikli, 2016. "Linear and nonlinear dynamics of housing price in Turkey," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 46.
    6. Vansteenkiste, Isabel, 2007. "Regional housing market spillovers in the US: lessons from regional divergences in a common monetary policy setting," Working Paper Series 708, European Central Bank.
    7. Theodore Panagiotidis & Panagiotis Printzis, 2016. "On the macroeconomic determinants of the housing market in Greece: a VECM approach," International Economics and Economic Policy, Springer, vol. 13(3), pages 387-409, July.
    8. Christophe André, 2010. "A Bird's Eye View of OECD Housing Markets," OECD Economics Department Working Papers 746, OECD Publishing.
    9. Dan Andrews, 2010. "Real House Prices in OECD Countries: The Role of Demand Shocks and Structural and Policy Factors," OECD Economics Department Working Papers 831, OECD Publishing.
    10. Mr. Vladimir Klyuev, 2008. "What Goes Up Must Come Down? House Price Dynamics in the United States," IMF Working Papers 2008/187, International Monetary Fund.
    11. Heilpern, Eliot & Haslam, Colin & Andersson, Tord, 2009. "When it comes to the crunch: What are the drivers of the US banking crisis?," Accounting forum, Elsevier, vol. 33(2), pages 99-113.
    12. Maynou, Laia & Monfort, Mercedes & Morley, Bruce & Ordóñez, Javier, 2021. "Club convergence in European housing prices: The role of macroeconomic and housing market fundamentals," Economic Modelling, Elsevier, vol. 103(C).
    13. Voigtländer, Michael, 2012. "The Stability of the German Housing Market," MPRA Paper 43315, University Library of Munich, Germany.
    14. International Monetary Fund, 2005. "Euro Area Policies: Selected Issues," IMF Staff Country Reports 2005/266, International Monetary Fund.
    15. Ansgar Belke & Jonas Keil, 2018. "Fundamental Determinants of Real Estate Prices: A Panel Study of German Regions," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(1), pages 25-45, February.
    16. Samya Beidas-Strom & Weicheng Lian & Ashwaq Maseeh, 2009. "The Housing Cycle in Emerging Middle Eastern Economies and its Macroeconomic Policy Implications," IMF Working Papers 2009/288, International Monetary Fund.
    17. Mei Liu & Qing-Ping Ma, 2021. "Determinants of house prices in China: a panel-corrected regression approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 67(1), pages 47-72, August.
    18. Barbar, Riham & Bosi, Stefano, 2010. "Collaterals and macroeconomic volatility," Research in Economics, Elsevier, vol. 64(3), pages 146-161, September.
    19. Mr. Nicolas R Blancher & François Haas & Mr. John Kiff & Ms. Oksana Khadarina & Mr. Paul S. Mills & Parmeshwar Ramlogan & Mr. William Lee & Ms. Yoon Sook Kim & Todd Groome & Mr. Shinobu Nakagawa, 2006. "The Limits of Market-Based Risk Transfer and Implications for Managing Systemic Risks," IMF Working Papers 2006/217, International Monetary Fund.
    20. Yeva Nersisyan & L. Randall Wray, 2010. "The global financial crisis and the shift to shadow banking," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 7(2), pages 377-400.
    21. Tripathi, Sabyasachi, 2019. "Macroeconomic Determinants of Housing Prices: A Cross Country Level Analysis," MPRA Paper 98089, University Library of Munich, Germany.

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