Agenda

Madi MANGAN
PhD Student in Economics
36^th cycle

Abstract:

It is widely acknowledged that financial crises are almost always preceded by a sharp rise in debt-based financing and asset prices. The Great Recession is simply one of the most recent and prominent examples. Between 2002 and 2006 mortgage origination increased across the whole income distribution, not just for low-income borrowers. The excess growth in credit led to a sharp rise in house prices, before their inevitable collapse. From a policy perspective, it is particularly important to distinguish supply-side credit expansions as these may call for a policy intervention before they turn into what is referred to as "bad boom", where inefficient lending inflates asset prices above fundamentals. This paper investigates how changes in credit availability influence house prices. We show that increases in household credit triggered by a relaxation of lending standards lead to higher transaction prices, higher shares and amounts of overbidding transactions and lower property sale times in the housing market. The impact on prices increases throughout the housing boom due to a higher take-up of credit by households. Also, it is stronger in locations with tighter housing supply and higher penetration of institutional investors and foreign buyers, among liquidity-constrained but credit-unconstrained buyers, as well as for relatively expensive properties. The findings support the credit-driven demand hypothesis and highlight that macroprudential policy contains systemic risk not only by reducing household leverage, but also by curbing house price growth over the cycle.

The seminar can be attended also remotely, connecting to ZOOM.

Link Zoom: bit.ly/insem-2425
ID riunione:  880 2639 9452
Passcode: InSem-2425