Home > Uncategorized > An ECB article on credit, house prices and the flow economy

An ECB article on credit, house prices and the flow economy

In the latest Research Bulletin of the ECB Gerhard Rünstler rightly states that ‘historical evidence suggests that many financial crises have been preceded by credit and housing booms‘ and ‘the emerging stylised facts have by no means been digested by the scientific economics community‘. But his implicit suggestion that these findings about credit, housing booms and economic downturns are new is wrong. According to Fred Foldvary (in 2007),

In the United States there has been a real estate cycle with a typical duration of about 18 years. This is shown on the table on the next page. This cycle was discovered by real estate economist Homer Hoyt (1960 [1970], p. 538), who explained, “While there were variations in timing between different cities and different types of property, the urban real estate cycle was approximately 18 years in length.” Hoyt adds, “The urban real estate cycle has been closely associated with the general business cycle.” Hoyt, however, did not fully understand the economics of the real estate cycle, at least the way it is analyzed here. He thus thought that the real estate cycle had been eliminated by 1960, whereas in fact it had already resumed. In real prices, after adjusting for inflation, real estate prices fell in 1973 and in 1990, and then again in 2006 and 2007.‘.


Rünstler shows graphs about credit, GDP and housing cycles in the USA, France (shown below), Germany (below) and the UK and therewith extends this idea to other countries. He also provides more sophisticated econometric analysis. Interestingly, France and the UK show patterns quite comparable to the USA while Germany, which has a tradition of low home ownership, doesn’t! But the existence of a credit-housing cycle is not a new discovery. It is, though, a good thing that Rünstler tries to disseminate this idea. Two graphs from the Rünstler article:





  1. Fernando Leiva
    September 2, 2016 at 12:50 am

    Very interesting. Is anybody doing a similar analysis for Asian and Latin American countries?

  2. David Chester
    September 2, 2016 at 7:28 am

    Its not just interesting. Until governments wake up, despite the unfriendly political implications, and begin to allow greater equality of rights of access to unused but useful land, the speculators in this natural resource will continue to damage the progress of the economy. The continuous investment of tax payers money into infrastructures (roads, sewers, street lights, bridges, schools, ports, etc.) will continue to cause land to be more valuable and the speculators to benefit from this. By changing the structure of the tax system and to tax land values instead of production based returns (like incomes, purchases and capital gains) more land will become available, its price drop and entrepreneurs be better able to compete with the big organizations.


  3. Bhaskara II
    September 2, 2016 at 7:42 am


    Professor Steve Keen is most likely doing it. He compares changes of credit and house prices in and gdp too. Often he uses debt/credit to gdp ratio. Others possibly too. I know he uses a large international BIS database for the debt data for many countries.

    I think any of this is obvious to many accountants or bankers, certainly J.P. Morgan. Many in finance probably know this too.

    It would be about a 50% chance for you to reproduce the graphs using Fred graph if you finding the names of the right time series and they have them. Fred graph and google can help with finding the names of the time series. I suggest this if you have some countries in particular you are interested in. But, often some one else has made the graph that one might make using Fred graph.

  4. Bhaskara II
    September 2, 2016 at 7:54 am

    My attempt for Japan took 15 minutes. But, I took half an hour trying two other countries.


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