Booms and Busts in Housing Markets: Determinants and Implications

50 Pages Posted: 21 Jul 2009

See all articles by Luca Agnello

Luca Agnello

University of Palermo - Department of Economics, Business and Statistics; ECB Fiscal Policies Division

Ludger Schuknecht

European Central Bank (ECB)

Date Written: July 21, 2009

Abstract

This study looks at real estate price booms and busts in industrialised countries. It identifies major and persistent deviations from long term trends for 18 countries and estimates the probabilities of their occurrence using a Random Effects Panel Probit model over the period 1980-2007. It finds that 1) most recent housing booms have been very persistent and of a significant magnitude; 2) there appears to be a strong correlation between the persistence and magnitude of booms and subsequent busts; 3) economic costs (in terms of GDP losses during the post-boom phase) depend significantly on the magnitude and duration of the boom and money and credit developments during that period; 4) a number of policy variables, including short term interest rates, local and global money and credit developments, and the incidence of mortgage market deregulation affect significantly the probability of experiencing booms and busts; and 5) the model is quite successful in identifying booms and busts early on.

Keywords: house prices, housing market, booms and busts

JEL Classification: E32, R21, R31

Suggested Citation

Agnello, Luca and Schuknecht, Ludger, Booms and Busts in Housing Markets: Determinants and Implications (July 21, 2009). ECB Working Paper No. 1071, Available at SSRN: https://ssrn.com/abstract=1433198 or http://dx.doi.org/10.2139/ssrn.1433198

Luca Agnello (Contact Author)

University of Palermo - Department of Economics, Business and Statistics ( email )

Viale delle Scienze
Palermo, 90100
Italy

ECB Fiscal Policies Division ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Ludger Schuknecht

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6494 (Phone)
+49 69 1344 7809 (Fax)

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