Home, Safe Home: Cross-Country Monitoring Framework for Vulnerabilities in the Residential Real Estate Sector

56 Pages Posted: 7 Sep 2017

See all articles by Elias Bengtsson

Elias Bengtsson

Halmstad University; University of Gothenburg - School of Business, Economics and Law

Magdalena Grothe

European Central Bank (ECB)

Etienne Lepers

Organisation for Economic Co-operation and Development

Date Written: August 25, 2017

Abstract

This paper proposes a framework for monitoring vulnerabilities related to the residential real estate sector in a cross-country context. The framework might be useful for complementing or cross-checking signals available from existing approaches. It takes into account three dimensions of real estate sector vulnerabilities (i.e. valuation, household indebtedness and the bank credit cycle) and enables monitoring across countries in a simple and informative way. Indicators are derived from the early warning literature and policy publications. They are aggregated in a model-free way to a vulnerability measure, explicitly capturing the level and the dynamics of vulnerabilities. The measure proves to be a significant predictor of historical real estate crises, with a better forecasting performance than the majority of advantageously in-sample calibrated model-based estimates. The monitoring framework allows for a simple and transparent analysis across different dimensions, provides a cross-check of consistency of signals from several indicators, and accounts for the developments in terms of the levels and dynamics. In view of its good forecasting performance, it is a useful complement of model-based toolkits for analysing vulnerabilities in the residential real estate sector.

Keywords: Real Estate Vulnerabilities, Real Estate Crises, Early Warning Models, Risk Monitoring

JEL Classification: R31, E32, C53

Suggested Citation

Bengtsson, Elias and Grothe, Magdalena and Lepers, Etienne, Home, Safe Home: Cross-Country Monitoring Framework for Vulnerabilities in the Residential Real Estate Sector (August 25, 2017). ECB Working Paper No. 2096, Available at SSRN: https://ssrn.com/abstract=3032414 or http://dx.doi.org/10.2139/ssrn.3032414

Elias Bengtsson

Halmstad University ( email )

301 18 Halmstad
Sweden

University of Gothenburg - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Magdalena Grothe (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Etienne Lepers

Organisation for Economic Co-operation and Development ( email )

2 rue Andre` Pascal
Paris, 75116
France

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