TY - JOUR
T1 - Mortgage credit and house prices
T2 - The housing market equilibrium revisited
AU - van der Drift, Rosa
AU - de Haan, Jan
AU - Boelhouwer, Peter
PY - 2023
Y1 - 2023
N2 - Over the last decade, house prices have increased substantially in nearly all OECD countries. These house price increases frequently coincided with changes in mortgage credit conditions; i.e., decreases in the interest rate and increases in income. This is in line with existing literature, which finds an equilibrium relationship between mortgage credit and house prices. The literature, however, lacks an analysis of what drives the equilibrium, which we assess in this paper. Moreover, we propose a combination of two explanations discussed in the literature. That is, we argue that lower-income households are bound by credit constraints, while higher-income households have a preference for spending a fixed fraction of income on mortgage payments. We develop theoretical models for all three explanations and test the models using data on the Dutch property market. The empirical results clearly support the combined approach. Overall, the results suggest that it is important to differentiate between types of households when forecasting house prices or assessing the effectiveness of policy interventions.
AB - Over the last decade, house prices have increased substantially in nearly all OECD countries. These house price increases frequently coincided with changes in mortgage credit conditions; i.e., decreases in the interest rate and increases in income. This is in line with existing literature, which finds an equilibrium relationship between mortgage credit and house prices. The literature, however, lacks an analysis of what drives the equilibrium, which we assess in this paper. Moreover, we propose a combination of two explanations discussed in the literature. That is, we argue that lower-income households are bound by credit constraints, while higher-income households have a preference for spending a fixed fraction of income on mortgage payments. We develop theoretical models for all three explanations and test the models using data on the Dutch property market. The empirical results clearly support the combined approach. Overall, the results suggest that it is important to differentiate between types of households when forecasting house prices or assessing the effectiveness of policy interventions.
KW - Cointegration
KW - Debt-service-to-income ratio
KW - Fundamentals
KW - House prices
UR - http://www.scopus.com/inward/record.url?scp=85145407507&partnerID=8YFLogxK
U2 - 10.1016/j.econmod.2022.106136
DO - 10.1016/j.econmod.2022.106136
M3 - Article
AN - SCOPUS:85145407507
SN - 0264-9993
VL - 120
JO - Economic Modelling
JF - Economic Modelling
M1 - 106136
ER -