Financial System and Housing Price

ABSTRACT

The 2007/2008 US financial crisis is related to the securitization of mortgage loans and the housing-price boom and bust. In this article, we test the hypothesis that housing-price change is related to the development of the financial system. Using panel data for 23 countries from 1988 to 2012, we have found that the housing-price growth rate increases as the financial system moves a bank orientation to a market orientation. The policy implication is that the government should beware sudden increases in the capital market relative to the banking sector. Especially, more sophisticated financial supervision with respect to housing-price movement is required when a bank-based financial system progresses quickly to a market-oriented financial system.

KEY WORDS:

• bank-based
• financial system
• housing price
• market-based
• panel data

JEL CLASSIFICATION:

• C23
• G20
• R30

Acknowledgments

We are grateful to Seokjin Woo, Ki Beom Binh, Hojin Jung, and anonymous referees for their helpful comments.

Notes

1. The advent of the euro has integrated securities markets relatively more than loan markets. The process of securitization in European countries has been accelerated by the adoption of the euro (Choi and Park 2014).

2. Refer to the appendix for country list and data source.

3. Refer to the appendix for data source. The authors acknowledge use of the dataset described in Mack and Martínez-García (2011).

4. Refer to BIS (2015) in the appendix.

5. Refer to the World Bank in the appendix.

Additional information

Funding

This work was supported by a 2014 grant from the Research Fund at Youngsan University.