Abstract
This paper analyzes mortgage loan demand in Argentina using a new survey administered in the Buenos Aires Metropolitan Area. It finds that recurring macro volatility and violation of financial property rights have increased demand for real estate as an investment, which in turn boosts housing prices and makes it more difficult for consumer households to meet minimum income requirements for obtaining a mortgage. Affordability thus seems to offer a better explanation than standard supply side constraints for the small size of the mortgage market in Argentina. Overall, the shallow mortgage market has not posed a major impediment to home ownership in Argentina and the small (and shrinking) mortgage market has more to do with lack of demand than credit supply constraints.
Highlights
The mortgage market in Argentinaquickly expanded duringthe 1990sas a resultofthe economic boom, market-oriented reformsin the financial sector, and an upgradingto internationalbestpracticesinthe mortgageregulatoryframework.Thestockof mortgageloans increasedfrom0.9to6percent ofGDPbetween1990and2000
Depositsinforeign currency were“pesified”at1.4pesosperdollar(well belowthe marketrate,implyinglarge losses for depositors) and banking loans in foreign currency were pesified at one peso per dollar.3Inthisperiod,mortgageloanswerepesifiedaswell,and foreclosures weretemporarilysuspended.Real GDPandprivateconsumptionplummeted10.9 percent and 14.4 percent, respectively, in 2002 alone, down 18.4 percent and 21.4 percent, respectively,fromtheirpre-crisispeakin1998.Argentina’scrisiswasreflectedinthevalueof localassetsinUSdollars.The Mervalindex(whichreflectsthevalueofmajorcompanieslisted onthe Buenos Aires Stock Exchange)fell drastically, andreal estate pricesin US dollars plunged by 50 percent on average in Buenos Aires City
In 2009thestock of mortgageloans representedjust1.6percentofGDP,or15percentoftotalprivatesectorcredit,comparedto6.2 percentand35percent,respectively,in2001.Inthatyear,only6 percentofnewtitles were financedby mortgageloans,comparedto25.5percentin2001.,thehousing market recovered with less leverage
Summary
The mortgage market in Argentinaquickly expanded duringthe 1990sas a resultofthe economic boom, market-oriented reformsin the financial sector, and an upgradingto internationalbestpracticesinthe mortgageregulatoryframework.Thestockof mortgageloans increasedfrom0.9to6percent ofGDPbetween1990and2000. Inspiteofthegeneraleconomicimprovementafterthecrisis,the mortgage market never went backto its pre-crisis depth. Siderestrictions(thereluctancebybankstolendlong-term)cannotfullyexplainthepost-crisis contractionin mortgageloans,sinceoverallcreditconditionshavebeenbetterinthe2000sthan inthe1990s.Bankshavebeenveryliquid,inacontextofverylowrealinterestrates( almostzero,comparedto15percentinthepreviousdecade).Alsoinconsistentwithsupplyside restrictionsisthefactthatinthe 2000s banks offered mortgagesatlonger durationsand higher loan-to-valueratiosthaninthe1990s.Inaddition,governmentinterventionspushingthesupply (throughinterventionsinthesecondary market andincreasing directlendingthrough public banks)havenothadnoticeableeffectsontheequilibriumnumberof mortgageloanseither.The lackofadynamicmortgagemarketishardtoreconcilewithaboominghousingmarketinterms ofprices,transactionsandnewlybuiltunitsunlessmortgagedemandrestrictionsareatwork. TheArgentinecaseremainslargelyunderexplored.KiguelandPodjarny(2007)provide descriptivestatistics oftherecent evolution ofthe mortgage marketfor Argentina, Chileand Uruguay toinvestigatethefactorsexplainingtherelativesuccessof Chile.Theyclaimthat, althoughtherearedifferencesinthelegalframeworkandfinancialinstrumentsusedinprimary andsecondary markets,theydonotseemtobethemainexplanationforthe unequallevelsof developmentamongthethreecountries.Onthecontrary,the mostimportantvariables in explainingthedifferencesaremacroeconomicconditions.Theseincludethefollowing: 1. Cristini and Moya(2004) analyzethe deepening ofthe mortgage marketinthe 1990s comparedtothefailure of the 1980s, concludingthatthe rapid takeoffis dueto both macroeconomicstability andthedevelopmentoflegalandmarket institutions.Banzasand Fernández(2007) describethe Argentine caseincludingthe 2001/2002crisis.Using household survey(EPH)datafor2007,theyperformasimpleaffordabilityexerciseandfindthat,inspiteof the morefavorableconditionsofferedbybanks,almost60percentofthepopulationdoesnot satisfytheminimumrequirementsforobtainingamortgageloan.. Thesepapersarebasedeitheron macrodataorhouseholdsurveydata,as microdataon housingfinancearenearlynonexistent.AnexceptionisAgarwal,ChomsisengphetandHassler (2005), who study the 2001/2002 crisis in Argentina. These authors use a unique loan-level datasettoempiricallyassesstheimpactofthecurrencydevaluationandtheeconomicresponse policiesonprepaymentanddefaultpatternsofresidential mortgagesasaconsequenceofthe previously mentioned pesification of bank loans and deposits. Theremainderofthepaperisstructuredasfollows.Section2briefly describesthe housingandhousingfinancesysteminArgentina.Section3providesadiscussionontherecent evolutionoftheArgentine mortgage market.Section4describesthenovelmicro-datausedand reportsthemainfindings,andSection5offersconcludingremarks
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