Self-reinforcing effects between housing prices and credit

Andre Anundsen () and Eilev Jansen

Journal of Housing Economics, 2013, vol. 22, issue 3, 192-212

Abstract: The financial crisis has brought the interaction between housing prices and household borrowing into the limelight of the economic policy debate. This paper examines the nexus of housing prices and credit in Norway within a structural vector equilibrium correction model (SVECM) over the period 1986q2–2008q4. The results establish a two way interaction in the long-run, so that higher housing prices lead to a credit expansion, which in turn puts an upward pressure on prices. Interest rates influence housing prices indirectly through the credit channel. Furthermore, households’ expectations about the future development of their own income as well as in the Norwegian economy have a significant impact on housing price growth. Dynamic simulations show how shocks are propagated and amplified. When we augment the model to include the supply side of the housing market, these effects are dampened.

Keywords: E27; E44; G21; G28; R21; R31; Housing prices; Household borrowing; Financial accelerator; SVECM; Dynamic simulations (search for similar items in EconPapers)
JEL-codes: E27 E44 G21 G28 R21 R31 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:22:y:2013:i:3:p:192-212

DOI: 10.1016/j.jhe.2013.07.001

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