Systemic financial crises and the housing market cycle

ABSTRACT

Using quarterly data for a group of 20 industrialized countries and both continuous- and discrete-time duration models, we show that financial crisis recessions are associated with a two- to three-fold increase in the likelihood of the end of a housing boom. Additionally, recessions preceded by booms in mortgage credit are especially damaging, as their occurrence coincides with an increase in the duration of housing market slumps of almost 90%.

KEYWORDS:

• Housing booms and busts
• duration analysis
• financial crises

JEL CLASSIFICATION:

• C41
• E32
• E51
• E52

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Appendix Table A1 provides the list of countries included in the analysis.

² We have also considered different thresholds for housing booms and housing busts. For instance, the threshold has been set equal to the average size of housing upturns and housing downturns over the entire sample of analysis (i.e. 23% and –11%, respectively). The results remained qualitatively and quantitatively unchanged and are available upon request.

Additional information

Funding

Castro and Sousa acknowledge that this work has been financed by Operational Programme for Competitiveness Factors - COMPETE and by National Funds through the FCT - Portuguese Foundation for Science and Technology within the remit of the project ‘ FCOMP-01-0124-FEDER-037268 (PEst-C/EGE/UI3182/2013)’;Fundação para a Ciência e a Tecnologia [FCOMP-01-0124-FEDER-037268 (PEst-C/EGE/UI3182/2013];