The impact of financial stress on house price expectations: evidence from survey data

Debasis Rooj, Asish Saha, Reshmi Sengupta and Anurag Banerjee

International Journal of Housing Markets and Analysis, 2025, vol. 19, issue 3, 820-841

Abstract: PurposeThis paper aims to investigate the impact of financial stress on house price expectations using unit-level observations from novel survey data.Design/methodology/approachThe authors use household-level data from the Inflation Expectation Survey of Households of the Reserve Bank of India and the Financial Stress Index (FSI) released by Tracking Asian Integration of the Asian Development Bank. The authors exploit the variations in household price expectations and estimate the impact of lagged FSI on house price expectations.FindingsThe authors find that increased financial stress results in lower house price expectations and has a stronger impact for the near term vis-à-vis a year ahead. Heterogeneity analysis reveals that a rise in FSI leads to increased expectations of house prices among women. Expectations are lower for the older population and people with less income stability. Asymmetric analysis reveals that house price expectations are more sensitive to high financial stress, offering new insights into the cyclical nature of housing sentiment. Moreover, the equity market and the foreign exchange market have the highest negative impact on house price expectations during financial stress.Practical implicationsThe findings of the association between financial stability, housing prices and credit and house price expectations have crucial implications for the central bank.Originality/valueTo the best of the authors’ knowledge, this study is the first to examine the impact of FSI on house price expectations observational data. The authors also uncover the heterogenous impact of FSI based on the socio-economic characteristics of the households. The authors further explore the asymmetric and disaggregated impact of FSI on house price expectations.

Keywords: Housing market analysis; Housing policy; Financial stress; Financial stability; Asymmetric analysis; House price expectations (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijhmap:ijhma-01-2025-0012

DOI: 10.1108/IJHMA-01-2025-0012

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