Credit Supply and the Housing Boom

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe housing boom that preceded the Great Recession was the result of an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices, the surge in household debt, the stability of debt relative to home values, and the fall in mortgage rates. These facts are difficult to reconcile with the popular view that attributes the housing boom to looser borrowing constraints associated with lower collateral requirements. In fact, a slackening of collateral constraints at the peak of the lending cycle triggers a fall in home prices in our framework, providing a novel perspective on the possible origins of the bust.

Household Debt and Business Cycles Worldwide

“…8 Since credit supply is considered fixed in this thought experiment, as long as the credit supply schedule is upward sloping we get the additional prediction that credit growth is associated with rising spreads as in Justiniano et al (2015).…”

“…A technological shock may raise future output directly through higher productivity, or indirectly by relaxing borrowing constraints through financial innovation. Justiniano et al (2015) model shocks to credit demand in this manner. Another related example would be a self-reinforcing "rational bubble" shock as in Martin and Ventura (2012) that raises agents' borrowing capacity today and translates into higher output tomorrow.…”

“…For a given interest rate and potential borrower, lenders are willing to lend more or on cheaper terms. Lenders may expand the supply of available credit due to the adoption of a securitization technology as in Justiniano et al (2015). Alternatively supply may expand because of increased demand for saving, an exogenous decline in the risk spread as in Schmitt-Grohé and Uribe (2016), or a decline in the risk spread due to "diagnostic expectations" as in Bordalo et al (2015).…”

Synchronous failure: the emerging causal architecture of global crisis

“…However, the flood of liquidity also helped produce a succession of speculative bubbles, in East Asia in the 1990s, in the American information technology sector in the late 1990s and early 2000s, in the housing sectors in the U.S. and some parts of Europe in the late 2000s (Justiniano et al 2015), and in natural resource markets in the late 2000s.…”

Economic Activity, Credit Market Conditions, and the Housing Market

“…7 Considering the impact 7 Interest rates can have both a direct and an indirect (via their e¤ect on credit availability) impact on the dynamics of housing prices, thus, on the likelihood of housing price booms and busts (Agnello and Schucknecht, 2011;Taylor, 2007Taylor, , 2009). Justiniano et al (2015) argue that the housing boom that emerged before the Great Recession can be attributed to an expansion of credit supply and a relaxation of credit constraints in the mortgage sector. In contrast, Favara and Imbs (2015) point out that the impact of exogenous credit supply shocks on house prices depends on the elasticity of housing supply: when housing supply is elastic, it is the housing stock (not housing prices) that is more likely to respond to changes in credit market conditions.…”