House-Prices and the Credit Market - Evidence from an International Panel of Industrialized Economies

In this article, we analyze to what extent the influence of housing market determinants and especially the credit market vary across countries and time. We do this by means of an international panel data set, consisting of quarterly data for 18 industrialized countries between 1975/01 and 2017/02. Moreover, we test whether our findings hold true when controlling for periods of house-price booms and busts relative to normal phases, a structural break in 1985 (Great Moderation), as well as selected characteristics of housing finance. Five results are worth highlighting. First, house-prices are best explained by disposable income, residential investment, the unemployment rate, the credit market, a business cycle dummy, and the cpi inflation. Second, the cpi inflation and the business cycle dummy are only significant after 1985, but are insignificant before. Third, the credit market only influences house-prices in normal and boom times, and the cpi inflation only in normal and bust times. Fourth, the LTV ratio has a strong and positive impact on house-price growth, and fifth, the degree to which an increase in credit growth is passed on to the housing market is strongest in countries with high LTV ratios in normal times, and in countries with more developed secondary mortgage markets in boom times.