Housing Cycle Research Articles

Heterogeneous Real Estate Agents and the Housing Cycle

Heterogeneous Real Estate Agents and the Housing Cycle

Homeowners’ financial vulnerability over the house price cycle

Abstract This paper investigates the financial vulnerability dynamics of indebted homeowners over the housing cycle using an agent-based housing market model, calibrated with UK microdata. The findings suggest that financial vulnerability is primarily driven by house purchases and dissaving due to a wealth effect on consumption. The former is more important during house price upswings, while the latter becomes significant at high price levels. Additionally, current vulnerability is path-dependent on previous purchases at high prices, as these purchases, due to a wealth effect, result in temporarily elevated consumption and consequently reduced financial buffers.

Housing cycle and firm investment: International firm-level evidence

The macro-finance literature provides conflicting views on how movements in housing price affect firms’ capital spending or R&D. We further explore this issue by analyzing a comprehensive international firm-level data set. We use the housing price component independent of firms’ investment opportunities and credit supply shocks. The results support the collateral channel as housing price and firm investment exhibit a positive relationship. This collateral channel is more distinct for capital expenditure than R&D, and in housing downturns when firms’ credit constraints bind. Nevertheless, housing appreciations are negatively associated with R&D and large housing booms are also detrimental to capital investment, which suggests a possible resource reallocation from the production sector to the housing sector during those phases. Small firms and firms with stronger investment opportunities respond more sensitively to housing price. Countries that rely more on bank financing and collateralized lending display a larger collateral effect in capital expenditure.

Housing, Distribution, and Welfare

AbstractHousing is a long‐lived asset whose value is sensitive to variations in expectations of long‐run growth rates and interest rates. When a large fraction of households has leverage, housing price fluctuations cause large‐scale redistribution and consumption volatility. We find that a practical way to insure the young and the poor from the housing market fluctuations is through a well‐functioning rental market. In practice, homeownership subsidies keep the rental market small and the housing cycle affects aggregate consumption. Removing homeownership subsidies hurts old homeowners, while leverage limits hurt young homeowners.

House price cycles, housing systems, and growth models

The paper provides a framework for theorising the role of house price cycles in national growth models. We synthesise Minskyan approaches with comparative political economy (CPE) by arguing that institutions influence the extent to which countries experience what we call ‘house-price-driven growth models’. First, we argue that house price dynamics have been undertheorised in existing growth models analysis. Finance-led models can be properly understood only against the background of rising house prices that stimulate consumption through wealth effects and investment through construction. Second, we identify behavioural and Minskyan theories of housing cycles as suitable frameworks to theorise the impact of housing on growth. However, this literature does not provide an analysis of cross-country differences in housing cycles. Third, drawing on the CPE literature on housing systems, we argue that factors such as private homeownership and mortgage-credit encouraging institutions can explain differences in the intensity of housing cycles. We provide preliminary empirical support for this framework from a cross-country analysis. Our results show strong cross-country heterogeneity in the intensity of housing cycles. Countries with more intense house price cycles also tend to exhibit more volatile business and debt cycles. Homeownership rates and mortgage-credit encouraging institutions are positively correlated with the volatility of house price cycles.

Anatomy of the Beginning of the Housing Boom across U.S. Metropolitan Areas

Abstract We provide novel estimates of the location, timing, magnitude, and determinants of the start of the previous U.S. housing boom. The housing cycle cannot be interpreted as a single, national event, as different markets began to boom across a decade-long period, some of them multiple times. A fundamental factor, income of prospective buyers, can account for half of the initial jump in price growth, while expansion of purchases by underrepresented minorities cannot. The start of the boom also was financed conventionally, not by subprime mortgages. The latter's share did rise sharply over time, but only after a multiyear lag.

A reconceptualisation of the housing cycle based on household upgrading desires

PurposeThe paper sets out a conceptualisation of the housing cycle centring on households' desire to upgrade their housing consumption.Design/methodology/approachThe paper begins by studying house price trends and cycles in OECD countries since 2000 to identify housing cycle patterns. It then assesses existing theories partly in relation to these patterns. It then proposes a new conceptualisation of the housing cycle.FindingsThe paper finds the central role of supply lags in housing cycles is not warranted. Instead, a demand cycle generated by upgrading desires better explains an initial boom followed by a slow recovery.Originality/valueThe paper challenges existing orthodoxy on housing cycle dynamics and proposes an alternative perspective.

The 2000s Housing Cycle with 2020 Hindsight: A Neo-Kindlebergerian View

Abstract With “2020 hindsight,” the 2000s housing cycle is not a boom–bust but a boom–bust–rebound. Using a spatial equilibrium regression in which house prices are determined by income, amenities, urbanization, and supply, we show that long-run city-level fundamentals predict not only 1997–2019 price and rent growth but also the amplitude of the boom–bust–rebound. This evidence motivates our model of a cycle rooted in fundamentals. Households learn about fundamentals by observing “dividends” but become over-optimistic in the boom due to diagnostic expectations. A bust ensues when beliefs start to correct, exacerbated by a price–foreclosure spiral that drives prices below their long-run level. The rebound follows as prices converge to a path commensurate with higher fundamental growth. The estimated model explains the boom–bust–rebound with a single shock and accounts quantitatively for the dynamics of prices, rents, and foreclosures in cities with the largest cycles. We draw implications for asset cycles more generally.

Housing prices in Spain: convergence or decoupling?

In this article, we measure changes in the synchronization of housing price cycles across Spanish cities over time. We rely on a regime-switching framework that identifies the housing price cycles of pairs of cities and simultaneously infers the evolving relation between those cycles. These bilateral relationships are then summarized into an aggregate index of city-level housing cycle synchronization. The estimates suggest that Spanish housing prices have followed a convergence pattern that reached a peak in 2009 and decreased slightly afterward. We also identify the cities that have been the main contributors to this convergence process. Moreover, we show that differences in population growth and economic structure are key factors in explaining the evolution of housing price synchronization among Spanish cities.

Mental and general health at the edges of owner occupation

PurposeThe purpose of this paper is to consider one test of a well-functioning housing system – its impact on wellbeing. Exploring one indicator of this, this study aims to track changes in mental and general health across a mix of tenure transitions and financial transactions in three jurisdictions: Australia, the UK and the USA.Design/methodology/approachUsing matched variables from three national panel surveys (Household, Income and Labour Dynamics in Australia, British Household Panel Survey/Understanding Society and Panel Study of Income Dynamics) over 17 years (2000–2017) to capture the sweep of the most recent housing cycle, this study adopts a difference-in-difference random-effects model specification to estimate the mental and general health effects of tenure change and borrowing behaviours.FindingsThere is an enduring health premium associated with unmortgaged owner-occupation. Mortgage debt detracts from this, as does the prospect of dropping out of ownership and into renting. A previously observed post-exit recovery in mental health – a debt-relief effect – is not present in the longer run. In fact, in some circumstances, both mental and general health deficits are amplified, even among those who eventually regain homeownership. Though there are cross-country differences, the similarities across these financialised housing systems are more striking.Practical implicationsThe well-being premium traditionally associated with owner occupation is under threat at the edges of the sector in all three jurisdictions. In this, there is cross-national convergence. There may therefore be scope to introduce policies to better support households at the edges of ownership that work across the board for debt-funded ownership-centred housing systems.Originality/valueThis paper extends the duration of a previous analysis of the impact of tenure transitions and financial transactions on well-being at the edges of ownership in the UK and Australia. The authors now track households over nearly two decades from the start of the millennium into a lengthy (post-global financial crisis) era of declining housing affordability. This study adds to the reach of the earlier study by adding a general health variable and a third jurisdiction, the USA.

Regionally heterogeneous housing cycles and housing market stabilization policies: Evidence from Korea

Regionally heterogeneous housing cycles and housing market stabilization policies: Evidence from Korea

Global financial cycles since 1880

We analyse global aggregate and segment-specific cycles across credit, house prices, equity prices, and interest rates in 17 economies over 130 years using a time-varying dynamic factor model. We show that global financial cycles have gained relevance over time. For equity prices, they now constitute the main driver of fluctuations in most countries. Global cycles in credit and housing have become more pronounced and protracted since the 1980s, and their relevance has increased for a sub-group of financially open and developed economies. Panel regressions show that a country’s susceptibility to global financial cycles tends to increase with financial openness and financial integration, the extent of mortgage-related lending, and the efficiency of stock markets. Understanding changes in global co-movement over time and its heterogeneous role across countries matters for the design of financial stabilization policies.

The Housing Cycle: Rents versus Prices

The Housing Cycle: Rents versus Prices

Heterogeneous Real Estate Agents and the Housing Cycle

Heterogeneous Real Estate Agents and the Housing Cycle

Stronger Local Housing Cycle: How Credit Expansion and Housing Policy Shape It

Stronger Local Housing Cycle: How Credit Expansion and Housing Policy Shape It

Stronger Local Housing Cycle: How Credit Supply and Housing Policy Shape It

Stronger Local Housing Cycle: How Credit Supply and Housing Policy Shape It

Early, Intense Rehabilitation Fails to Improve Outcome After Intra-Striatal Hemorrhage in Rats

Background The formation and degradation of an intracerebral hemorrhage causes protracted cell death, and an extended window for intervention. Experimental studies find that rehabilitation mitigates late cell death, with accelerated hematoma clearance as a potential mechanism. Objective We assessed whether early, intense, enriched rehabilitation (ER, environmental enrichment and massed skills training) enhances functional benefit, reduces brain injury, and augments hematoma clearance. Methods In experiment 1, rats (n = 56) were randomized to intervention in the light (-L) or dark phase (-D) of their housing cycle, then to 10 days of ER or control (CON) treatment after collagenase-induced striatal intracerebral hemorrhage (ICH). ER rats were treated from 5 to 14 days after ICH. Behavior and residual hematoma volume was assessed on day 14. In experiment 2, rats (n = 72) were randomized to ER-D10, ER-D20, or CON-D. ER rats completed 10 or 20 days of training in the dark. Rats were euthanized on day 60 for histology. In both experiments, behavioral assessment was completed pre-ICH, pre-ER (day 4 post-ICH), and post-ER (experiment 1: days 13-14; experiment 2: days 16-17 and 30-31). Results Reaching intensity was high but similar between ER-D10 and ER-L10. Unlike previous work, rehabilitation did not alter skilled reaching or hematoma resolution. Varying ER duration also did not affect reaching success or lesion volume. Conclusions In contrast to others, and under these conditions, our findings show that striatal ICH was generally unresponsive to rehabilitation. This highlights the difficulty of replicating and extending published work, perhaps owing to small inter-study differences.

A tale of housing cycles and fiscal policy, not competitiveness. Growth drivers in Southern Europe

ABSTRACT Southern European countries are widely considered a distinct type of capitalism, but they have experienced a varied growth performance, both over time and across countries. This paper investigates the growth drivers in southern Europe since the mid-1990s. We consider a broad set of potential growth drivers derived from the literature on Mediterranean capitalism and Comparative Political Economy more broadly. On the demand side, these include the role of house prices (as the main financial variable; highlighted in parts of the growth models approach); the ‘financial curse’ hypothesis (which posits that financial inflows caused house price booms and crowded out manufacturing activities); and Keynesian arguments on the impact of fiscal policy. On the supply side, these encompass the cost competitiveness argument (consistent with mainstream economics and the Varieties of Capitalism approach), research-led technological change; and neo-structuralist arguments regarding the productive capacity. We find strong evidence for the growth contributions of house prices and fiscal policy. While these findings are generally supportive of extant analysis of these economies as finance-led rather than export-led, they call for a more serious integration of house prices in growth model analysis and for a more systematic analysis of the growth impact of fiscal policy.

The effect of borrower-specific loan-to-value policies on household debt, wealth inequality and consumption volatility: An agent-based analysis

This paper analyses the effects of borrower-specific credit constraints on macroeconomic outcomes in an agent-based housing market model, calibrated using UK household survey data. We apply different Loan-to-Value (LTV) caps for different types of agents: first-time buyers, second and subsequent buyers, and buy-to-let investors. We then analyse the outcomes on household debt, wealth inequality and consumption volatility. The households’ consumption function, in the model, incorporates a wealth term and income-dependent marginal propensities to consume. These characteristics cause the consumption-to-income ratios to move procyclically with the housing cycle. In line with the empirical literature, LTV caps in the model are overall effective while generating (distributional) side effects. Depending on the specification, we find that borrower-specific LTV caps affect household debt, wealth inequality and consumption volatility differently, mediated by changes in the housing market transaction patterns of the model. Restricting investors’ access to credit leads to substantial reductions in debt, wealth inequality and consumption volatility. Limiting first-time and subsequent buyers produces only weak effects on household debt and consumption volatility, while limiting first-time buyers even increases wealth inequality. Hence, our findings emphasise the importance of applying borrower-specific macroprudential policies and, specifically, support a policy approach of primarily restraining buy-to-let investors’ access to credit.

Misalignments in house prices and economic growth in Europe

ABSTRACT In this paper we investigate house price misalignments and how they affect the real economy. We estimate the long-term relationship between house prices and the fundamentals that determine long-term house prices for a panel of European countries with dynamic OLS, using data from 2005–2018. We find that income has been the main driver of fundamental house prices in all countries, while the supply of dwellings has calmed the rise in house prices in some of them. We calculate house price misalignments, which are deviations of house prices from the fundamental value, and we employ them in the growth model. The results of the growth regression indicate that house price imbalances amplify business cycles in the short term, but in the long term house price overvaluations slow economic growth down. The findings imply that it is crucial to take measures to stabilize housing cycles.