Dating housing booms fueled by credit: A Markov switching approach

Carlos Cañizares Martínez

Journal of Financial Stability, 2025, vol. 78, issue C

Abstract: This study aims to empirically identify the state of the US housing market. I do so by estimating a Markov switching model of housing prices, in which mortgage debt affects house prices nonlinearly and drives state transition probabilities. Second, I compute a state-contingent housing risk measure fed with the probability of being in each state. Finally, I show that such risk measure contains early warning information in a forecasting exercise to predict the charge-off rates of real estate residential loans and a financial stress index. The significance of this study is that it informs economic agents and policymakers about the state of the housing market mechanically.

Keywords: House prices; Non-linear modeling; Markov switching model; Household debt (search for similar items in EconPapers)
JEL-codes: C22 C24 G51 R21 R31 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:78:y:2025:i:c:s1572308925000415

DOI: 10.1016/j.jfs.2025.101412

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