Leveraged housing bubbles: ‘the worst case of all’.
Recent research shows that credit fuelled housing bubbles are extremely dangerous and detrimental. Two examples:
Dirk Bezemer and Lu Zhang have a new paper. About leveraged housing bubbles. Ahem:
Using new data on four types of bank credit over 2000-2012 for 51 economies in OLS and Bayesian averaging models, we find that changes in the share of household mortgage credit in total credit before the crisis are significantly associated with recession depth and growth loss after the 2007 crisis. This finding is robust to a wide range of control variables and to the different responses across advanced and emerging economies. The evidence also suggests that mortgage growth combined with increasing bank leverage was particularly damaging to output growth.
Òscar Jordà, Moritz Schularick, Alan Taylor have a new paper. About leveraged housing bubbles. Ahem:
Drawing on 140 years of data, this column argues that leverage is the critical determinant of crisis damage. When fuelled by credit booms, asset price bubbles are associated with high financial crisis risk; upon collapse, they coincide with weaker growth and slower recoveries. Highly leveraged housing bubbles are the worst case of all.