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

Calvin Schnure

No 2005/200, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; price; housing market; housing price; lending; Mortgage markets; housing prices; securitization; housing activity; price formation; pricing error; housing finance; price trend; mortgage lending; Mortgages; Housing; Inflation; Business cycles (search for similar items in EconPapers)
Pages: 27
Date: 2005-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=18615 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2005/200

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().