Not all Housing Cycles are Created Equal: Macroeconomic Consequences of Housing Booms

Bruno Albuquerque, Eugenio Cerutti, Yosuke Kido and Richard Varghese

No 2025/050, IMF Working Papers from International Monetary Fund

Abstract: This paper shows that not all housing price cycles are alike. The nature of the housing expansion phase—especially whether a housing price boom characterized by rapid and persistent house price growth is present—plays a key role in shaping the severity of the subsequent contraction, and the net macroeconomic impact over the full cycle. Analyzing 180 housing expansions across 68 countries, we classify 49 percent as housing booms, characterized by rapid and persistent real house price increases. We find that economic downturns are significantly deeper and longer when housing contractions are preceded by a housing boom. The housing contraction is more severe the more intensive the preceding housing boom, and when accompanied by a credit boom. Overall, while housing booms spur stronger economic growth during the expansion phase, their sharp reversals lead to severe housing contractions, resulting in significant net negative effects on the real economy.

Keywords: Housing booms; Housing busts; Credit booms; Macroprudential policies; housing boom; housing contraction; housing price boom; housing expansion phase; housing expansion; Housing; Housing prices; Business cycles; Consumer credit; Global (search for similar items in EconPapers)
Pages: 62
Date: 2025-02-28
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