Economics & Sociology

ISSN: 2071-789X eISSN: 2306-3459 DOI: 10.14254/2071-789X
Index PUBMS: f5512f57-a601-11e7-8f0e-080027f4daa0
Article information
Title: Demand for residential mortgage loans and house prices in the euro area
Issue: Vol. 13, No 1, 2020
Published date: 03-2020 (print) / 03-2020 (online)
Journal: Economics & Sociology
ISSN: 2071-789X, eISSN: 2306-3459
Authors: Silvo Dajcman
University of Maribor, Maribor, Slovenia
Keywords: mortgage loans, house prices, interest rates, subprime crisis
DOI: 10.14254/2071-789X.2020/13-1/3
Index PUBMS: e29ac4f8-78be-11ea-a0f3-fa163e0fa1a0
Language: English
Pages: 40-51 (12)
JEL classification: E14, G21
Website: https://www.economics-sociology.eu/?724,en_demand-for-residential-mortgage-loans-and-house-prices-in-the-euro-area
Licenses:
Abstract

This paper explores the determinants of demand for residential mortgage loans in the euro area, with a focus on the house prices–demand for loans nexus. We firstly identify the demand for residential mortgage loans and then empirically assess a model for an unbalanced panel of 13 euro area countries, covering the period 2003Q1–2016Q3. Our results show that the growth of house prices is positively associated with changes in demand for residential mortgage loans. A positive association was also found between GDP growth and changes in demand for mortgage loans. Growth in residential mortgage interest rates and changes in bank credit standards for residential mortgage loans are negatively associated with changes in demand for residential mortgage loans. We found that these associations generally became more significant after the start of the subprime mortgage crisis in the U.S. rather than before the crisis.

Bibliography

1. Alm, J., & Follain J.R. (1984). Alternative mortgage instruments, the tilt problem, and consumer welfare. Journal of Financial and Quantitative Analysis, 19(1), 113–126.

2. Baltagi, B.H. (2005). Econometric Analysis of Panel Data models. Third Edition. Chichester: John Wiley & Sons Ltd.

3. Bank for International Settlements. (2017). Selected representative residential property price series – data documentation” Available:http://www.bis.org/statistics/pp_selected_documentation.pdf.

4. Bassett, F.W., Chosak M.B., Driscoll J.C., & Zakrajsek E. (2012). Changes in bank lending standards and the macroeconomy. Federal Reserve Board Finance and Economics Discussion Series paper No. 2012–24.

5. Basten, C., & Koch C. (2016). The causal effect of house prices on mortgage demand and mortgage supply: evidence from Switzerland. BIS Working Papers No. 555.

6. Berg, J., van Rixtel A., Ferrando A., de Bondt G., & Scopel S. (2005). The bank lending survey for the Euro area. European Central Bank Occasional Paper.

7. Bernanke, B.S., & Gertler M. (1995). Inside the Black Box: The Credit Channel of Monetary Policy Transmission. Journal of Economic Perspectives, 9(4), 27–48.

8. Bokhari S., Torous W., & Wheaton W. (2013). Why did Household Mortgage Leverage Rise from the mi-1980s until the Great Recession? Paper presented at the 2013 Annual Meeting of American Economic Association, Jan 05, 2013.

9. Brueckner, J.K. (1994a). The Demand for Mortgage Debt: Some Basic Results. Journal of Housing Economics, 3(4), 251–262.

10. Brueckner, J.K. (1994b). Consumption and investment motives and the portfolio choices of homeowners. Journal of Real Estate Finance and Economics, 15(2), 159–180.

11. Campbell, J., & Cocco J. 2007. How do house prices affect consumption? Evidence from micro data.Journal of Monetary Economics, 54(3), 591–621.

12. Ciccarelli, M., Maddaloni A., & Peydró J.L. (2015). Trusting the bankers. A new look at the credit channel of monetary policy” Review of Economic Dynamics 18(4): 979–1002.

13. Crowe, C., Dell' Aricciac G., Igan D., and Rabanal P. (2011). Policies for Macrofinancial Stability. Options to Deal with Real Estate Booms. IMF Statt Discussion Note SDN11/02.

14. Dajcman, S. (2016). The Bank Lending Channel of Monetary Policy and its Macroeconomic Effects: Evidence from a Sample of Selected Euro Area Countries. Inzinerine Ekonomika-Engineering Economics, 27(2), 124–133.

15. Dajcman, S. (2017). Bank risk aversion and the risk-taking channel of monetary policy in euro area. Panoeconomicus, 64(5), 607–621.

16. Eberhardt, M. (2011). XTMG: Stata module to estimate panel time series models with heterogeneous slopes. Statistical Software Components S457238, Boston College Department of Economics.

17. ECB. (2016). Bank lending survey for the euro area. Glossary. European Central Bank: Frankfurt.

18. ECB. (2017a). Lending for house purchase vis-a-vis euro area households reported by MFI excluding ESCB in the euro area (stock). Available: http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=117.BSI.M.U2.N.A.A22.A.1.U2.2250.Z01.E&start=&end=&submitOptions.x

19. ECB. (2017b). Residential property prices. Available: http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.A.I8.N.TD.00.3.00&start=&end=&submitOptions.x=0&submitOptions.y=0&trans=YPC.

20. Eurostat. (2017a). Financial balance sheets. Available: http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=nasq_10_f_bs&lang=en.

21. Eurostat. (2017b). Average household size – EU SILC survey. Available: http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=ilc_lvph01&lang=en.

22. Flavin, M. & Yamashita T. (2002). Owner-Occupied Housing and the Composition of the Household Portfolio”, American Economic Review, 92(1), 345–362.

23. Fitzpatrick, T., & McQuinn K. (2007). House prices and mortgage credit: Empirical evidence for Ireland. The Manchester School, 75(1), 82–103.

24. Follain, J.R., & Dunsky R.M. (1997). The Demand for Mortgage Debt and the Income Tax. Journal of Housing Research, 8(2), 155–199.

25. Greene, W.H. (2002). Econometric Analysis, Fifth Edition. New Jersey: Prentice Hall.

26. Hempell, H.S., & Sørensen K. 2010. The impact of supply constraints on bank lending in the euro area – crisis induced crunching? European Central Bank Working Paper Series, No. 1262.

27. Hoechle, D. (2007). Robust standard errors for panel regressions with cross–sectional dependence. The Stata Journal, 7(3), 281–312.

28. Holmes, M. J. (1993). The Demand for Building Society Mortgage Finance in Northern Ireland and Scotland. Regional Studies, 27(2), 103–108.

29. Jones, L.D. (1993). The demand for home mortgage debt. Journal of Urban Economics, 33(1), 10–28.

30. Jones, D. L. (1995). Net wealth, marginal tax rates and the demand for home mortgage debt. Regional Science and Urban Economics, 25(3), 297–322.

31. Jordà. Ò., Schularick M., & Taylor A.M. (2014).The Great Mortgaging: Housing Finance, Crises, and Business Cycles. Federal Reserve Bank of San Francisco Working Paper Series No. 2014–23.

32. Leece, D. (2004). Economics of the Mortgage market: Perspective on Household Decision Making. Oxford: Blackwell Publishing.

33. Leece, D. (2006). Testing a Basic Theoretical Model of Mortgage Demand on United Kingdom Data. Applied Economics, 38(17), 2037–2051.

34. Ling, D.C., & McGill G.A. (1998). Evidence on the Demand for Mortgage Debt by Owner-Occupants. Journal of Urban Economics, 44(3), 391–414.

35. Lown, C.S., & Morgan D. P..(2006). The credit cycle and the business cycle: new findings from the Loan officer opinion survey. Journal of Money, Credit, and Banking, 38(6), 1575–1597.

36. Lustig, H., & Van Nieuwerburgh S. (2005). Housing collateral, consumption insurance and risk premia: an empirical perspective. Journal of Finance, 60(3), 1167–1219.

37. Mian, A.R., and Sufi A. (2011). House-prices, home equity-based borrowing, and the U.S. household leverage crisis. American Economic Review, 101(5), 2132–56.

38. Nobili, A., and Zollino G. (2017). A structural model for the housing and credit market in Italy” Journal of Housing Economics, 36(June), 73–87.

39. Ortalo-Magné, F., & Rady S. (2006). Housing market dynamics: on the contribution of income shocks and credit constraints. Review of Economic Studies, 73(2), 459–485.

40. Pesaran, M.H. & Smith R. (1995). Estimation of Long-run Relationships from Dynamic Heterogeneous Panels. Journal of Econometrics, 68(1), 79–11.

41. Sinai, T. & Souleles N.S. (2005). Owner-occupied housing as a hedge against rent risk. Quarterly Journal of Economics, 120(2), 763–89.

42. Stiglitz, J.E., & Weiss A. (1981). Credit Rationing in Markets with Imperfect Information. The American Economic Review, 71(3), 393–410.

43. Wolswijk, G. (2005). On some fiscal aspects on mortgage debt growth in the EU. European Central Bank Working Paper Series No. 526.