Housing markets and the financial crisis of 2007-2009: Lessons for the future

Journal of Financial Stability

Volumn 6, Issue 4, 2010, Pages 203-217

  Duca, John V ^a,b   Muellbauer, John ^c   Murphy, Anthony ^d  

^a FEDERAL RESERVE BANK OF DALLAS   (United States)

^b SOUTHERN METHODIST UNIVERSITY   (United States)

^c NUFFIELD COLLEGE   (United Kingdom)

^d HERTFORD COLLEGE   (United Kingdom)

Author keywords

Credit crunch; Financial crisis; House prices; Subprime mortgages

Indexed keywords

EID: 79955915357     PISSN: 15723089     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jfs.2010.05.002     Document Type: Article

References (137)

1. Abraham J., Hendershott P. Bubbles in metropolitan housing markets. Journal of Housing Research 1996, 7:191-207.
2. Acharya V.V. A theory of systemic risk and design of prudential bank regulation. Journal of Financial Stability 2009, 5:224-255.
3. Acharya, V.V., Brenner, M., Engle, R., Lynch, A., Richardson, M., 2009. Derivatives: the ultimate financial innovation. In: Acharya, V.V., Richardson, M. (Eds.), Restoring Financial Stability: How to Repair a Broken System. Wiley.
4. Acharya V.V., Schnabl P. How banks played the leverage game. Restoring Financial Stability: How to Repair a Broken System 2009, Wiley. V.V. Acharya, M. Richardson (Eds.).
5. Adrian, T., Shin, H.S. Liquidity and leverage. Journal of Financial Intermediation, forthcoming.
6. Ahearn, A.G., Ammer, J., Doyle, B.M., Kole, L.S., Martin, R.F., 2005. House prices and monetary policy: a cross-country study. International Finance Discussion Paper No. 841, Board of Governors of the Federal Reserve System.
7. Aron J., Muellbauer J., Murphy A. Housing wealth and UK consumption. Economic Outlook 2006, 30(4):11-20.
8. Aron, J., Duca, J., Muellbauer, J., Murata, K., Murphy, A., 2010. CEPR Discussion Paper No. 7876.
9. Barker K. Review of Housing Supply: Interim Report-Analysis 2003, HM Treasury, London.
10. Barker K. Review of Housing Supply-Final Report 2004, HM Treasury, London.
11. Bennett P., Peach R., Peristiani S. Structural change in the mortgage market and the propensity to refinance. Journal of Money, Credit, and Banking 2001, 33(4):955-975.
12. Bernanke, B.S., 2009. Lessons of the Financial Crisis for Banking Supervision, Speech to the 2009 Federal Reserve Bank of Chicago Conference on Bank Structure and Competition, Chicago, IL, U.S.A., May 7, 2008, http://www.federalreserve.gov/newsevents/speech/bernanke20090507a.htm.
13. Blake, N., Muellbauer, J., 2009. Developing Analytical Methods for the Identification of Imbalance and Risks in the EU Housing Markets. Report to the European Commission, September.
14. Blanchard O., Katz L. Regional evolutions. Brookings Papers on Economic Activity, 1992 1992, (1):1-76.
15. Board of Governors of the Federal Reserve System, 2007. Statement on subprime mortgage lending, June 2007, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20070629a1.pdf.
16. Borio, C., Furfine, C., Lowe, P., 2001. Procyclicality of the financial system and financial stability: issues and policy options. BIS papers, no. 1.
17. Bover, O., 2007. Wealth effects on consumption: microeconometric estimates from a new survey of household finances. Banco de España working paper 0522.
18. Bramley G. The impact of land-use planning and tax subsidies on the supply and price of housing in Britain. Urban Studies 1993, 30:5-30.
19. Bramley G. Land-use planning and the housing market in Britain-the impact on house building and house prices. Environment and Planning A 1993, 25:1021-1051.
20. Bramley G., Leishman C. A local housing market model with spatial interaction and land-use planning controls. Environment and Planning A 2005, 37(9):1637-1649.
21. Brayton, F., Tinsley, P., 1996. A guide to FRB/US: a macroeconomic model of the United States. FEDS working paper 1996-42, Board of Governors of the Federal Reserve System.
22. Browning M., Gortz M., Leth-Petersen S. House Prices and Consumption: A Micro Study, Mimeo 2008, Nuffield College, Oxford University.
23. Buiter, W., 2008. Housing wealth isn't wealth. NBER working paper no. 14204.
24. Calomiris, C.W., Wallison, P.J., 2008. The last trillion dollar commitment: the destruction of Fannie Mae and Freddie Mac, AEI Financial Services Outlook, September 30, 2008, http://www.aei.org/publications/pubID.28704/pub_detail.asp.
25. Cameron, G., Muellbauer, J., Murphy, A., 2006. Was there a british house price bubble? Evidence from a regional panel. CEPR discussion paper no. 5619.
26. Campbell J.Y., Cocco J. How do house prices affect consumption? Evidence from micro data. Journal of Monetary Economics 2007, 54:591-621.
27. Canner G., Dynan K., Passmore W. Mortgage refinancing in 2001 and early 2002. Federal Reserve Bulletin 2002, 88:469-481.
28. Capozza D., Seguin P. Expectations, efficiency, and euphoria in the housing market. Regional Science and Urban Economics 1996, 26:369-386.
29. Carroll C., Kimball M. Liquidity Constraints and Precautionary Saving 2004, Mimeo, Johns Hopkins University.
30. Carroll C., Otsuka M., Slacalek J. How Large Is the Housing Wealth Effect? A New Approach 2006, Mimeo, Johns Hopkins University.
31. Case K.E., Quigley J.M. How housing booms unwind: income effects, wealth effects, and feedbacks through financial markets. European Journal of Housing Policy 2008, 8(2):161-180.
32. Case, K., Quigley, J., Shiller, R., 2005. Comparing wealth effects: the stock market versus the housing market, Advances in Macroeconomics, 5 (1), Article 1. Online at http://www.bepress.com/bejm/advances/vol5/iss1/art1.
33. Case K.E., Shiller R.J. The efficiency of the market for single-family homes. American Economic Review 1989, 79:125-137.
34. Case K.E., Shiller R.J. Forecasting prices and excess returns in the housing market. Journal of the American Real Estate and Urban Economics Association 1990 1990, 18:253-273.
35. Catte, P., Girouard, N., Price, R., Andre, C., 2004. Housing markets, wealth and the business cycle, OECD Economics Department Working Paper, No. 394, OECD Publishing.
36. Cetorelli, N., Goldberg, L., 2009. Banking Globalization and Monetary Transmission, Mimeo, Federal Reserve Bank of New York.
37. Clayton J. Rational expectations, market fundamentals and housing price volatility. Real Estate Economics 1996, 24:441-470.
38. Cooper D. Impending Spending Bust? The Role of Housing Wealth as Borrowing Collateral 2009, Mimeo, University of Michigan.
39. Corden W.M. China's exchange rate policy, its current account surplus and the global imbalances. The Economic Journal 2009, 119:F430-F441.
40. Cortina, A., 2009. The residential boom and its consequences: a view from a Spanish bank. Presentation at the SUERF/Bank of Finland Conference: " Housing Markets: A Shelter From the Storm or a Cause of the Storm?" June.
41. Credit Suisse, 2007. Mortgage quality du jour: underestimated no more, March 13, 2007.
42. Davey M. Mortgage equity withdrawal and consumption 2001, Bank of England Quarterly Bulletin, Spring, pp. 1001-1003.
43. Deng Y., Quigley J., Van Order R. Mortgage terminations, heterogeneity and the exercise of mortgage options. Econometrica 2000, 68(2):275-307.
44. DiMartino, D., Duca, J.V., 2007. The rise and fall of subprime mortgages. Federal Reserve Bank of Dallas Economic Letter, November, http://dallasfed.org/research/eclett/2007/el0711.pdf.
45. DiMartino, D., Duca, J.V., Rosenblum, H., 2007. From complacency to crisis: financial risk-taking in the early 21st century, Federal Reserve Bank of Dallas Economic Letter, December, http://dallasfed.org/research/eclett/2007/el0712.pdf.
46. DiPasquale D. What don't we know about housing supply?. Journal of Real Estate Finance and Economics 1999, 18:9-25.
47. Duca J.V. Deposit deregulation and the sensitivity of housing. Journal of Housing Economics 1996, 5:207-227.
48. Duca, J.V., DiMartino, D., Renier, J., 2009a. Fed confronts financial crisis by expanding its role as lender of last resort, Federal Reserve Bank of Dallas Economic Letter, February/March 2009. http://dallasfed.org/research/eclett/2009/el0902.pdf.
49. Duca, J.V., 2006a. Making sense of the U.S. housing slowdown. Federal Reserve Bank of Dallas Economic Letter, November. http://dallasfed.org/research/eclett/2006/el0611.pdf.
50. Duca J.V. Mutual funds and the evolving long-run effects of stock wealth on U.S. consumption. The Journal of Economics and Business 2006, 58:202-221.
51. Duca, J.V., Muellbauer, J., Murphy, A., 2009b. Credit Constraints and House Prices: Making Sense of the U.S. Experience. Mimeo, Oxford University.
52. Duca, J.V., Johnson, K.B., Muellbauer, J., 2009c. Time Series Estimates of U.S. Mortgage Constraints and Regional Home Supply. Mimeo, Oxford University.
53. Duca J.V., Muellbauer J., Murphy A. The Financial Crisis and Consumption 2009, Mimeo, Oxford University.
54. Dvornak N., Kohler M. Housing wealth, stock market wealth and consumption: a panel analysis for Australia. The Economic Record 2007, 83(261):117-130.
55. The Economist, 2007. The Trouble with the Housing Market, Print Edition, March 22, 2007.
56. Engelhardt G.V. House prices and home owner saving behavior. Regional Science and Urban Economics 1996, 26:313-336.
57. Engelhardt G.V. Consumption, down payments and liquidity constraints. Journal of Money Credit and Banking 1996, 28(2):255-271.
58. Englund P. Taxing residential housing capital. Urban Studies 2003, 40:937-952.
59. European Central Bank, 2003. Structural Factors in the EU Housing Markets, March.
60. European Central Bank, 2009. Housing Finance in the Euro Area, Task Force of the Monetary Policy Committee of the European System of central Banks, Occassional Paper no. 101.
61. Evans A.W. The impact of land-use planning and tax subsidies on the supply and price of housing in Britain. Urban Studies 1996, 33:581-585.
62. Fernandez-Corregudo, E., Muellbauer, J., 2006. Consumer credit conditions in the U.K., Bank of England. Working paper 314.
63. Foote C.L., Gerardi K., Willen P.S. Negative equity and foreclosure: theory and evidence. Journal of Urban Economics 2008, 64:234-245.
64. Foote, C.L., Fuhrer, J., Mauskopf, E., Willen, P.S., 2009. A proposal to help distressed homeowners: a government payment-sharing plan, Federal Reserve Bank of Boston, February 10, http://www.bos.frb.org/economic/paymentsharingproposal.pdf.
65. Fortune C., Moohan J. International variations in new housing supply. Journal of Housing Markets and Analysis 2008, 1(4):379-392.
66. Frame W.S. The 2008 federal intervention to stabilize Fannie Mae and Freddie Mac. Journal of Applied Finance 2008, 18(2):124-136.
67. Gerardi K., Lehnert A., Sherlund S.M., Willen P.S. Making sense of the subprime crisis. Brookings Papers on Economic Activity, 2008 2008, (2):69-145.
68. Girouard, N., Blondal, S., 2001. House prices and economic activity. OECD Economics Department working papers, no. 279.
69. Girouard, N., Kennedy, M., van den Nord, P., Andre, C., 2006. Recent house price developments. OECD Economics Department working papers, no. 475.
70. Goodman J.L., Ittner J.B. The accuracy of home owners' estimates of house value. Journal of Housing Economics 1992, 2(4):339-357.
71. Grant C., Peltonen T. Income and Wealth Effects of Italian Households 2004, Mimeo, European University Institute.
72. Green R., Malpezzi S., Mayo S.K. Metropolitan-specific estimates of the price elasticity of supply of housing, and their sources. American Economic Review 2005, 95(2):334-339.
73. Greenlaw, D., Hatzius, J., Kashyap, A., Shin, H., 2008. Leveraged losses: lessons from the mortgage market meltdown. Proceedings of the U.S. Monetary Policy Forum 2008.
74. Greenspan A., Kennedy J. Sources and uses of equity extracted from homes. Oxford Review of Economic Policy 2008, 24(1):120-144.
75. Hamilton B., Schwab R. Expected appreciation in urban housing markets. Journal of Urban Economics 1985, 18:103-118.
76. Hatzius J. Beyond leveraged losses: the balance sheet effects of the home price downturn. Brookings Papers on Economic Activity 2008, 2:195-227.
77. Hendershott P.H. Are real house prices likely to decline by 47 percent?. Regional Science and Urban Economics 1992, 22:553-563.
78. Hildebrand P.M. The sub-prime crisis: a central banker's perspective. Journal of Financial Stability 2008, 4:313-320.
79. Hott C Herding behavior in asset markets. Journal of Financial Stability 2009, 5:35-56.
80. Hurst E., Stafford F. Home is where the equity is: mortgage refinancing and household consumption. Journal of Money, Credit, and Banking 2004, 36(6):985-1014.
81. IMF, 2006. Spain: financial sector assessment program-technical note-housing prices, household debt, and financial stability, IMF country report no. 06/210, http://internationalmonetaryfund.com/external/pubs/ft/scr/2006/cr06210.pdf.
82. IMF, 2009. Global financial stability report: responding to the financial crisis and measuring systemic risks, April 2009. http://www.imf.org/external/pubs/ft/gfsr/2009/01/index.htm.
83. Jaffee D.M. The interest rate risk of Fannie Mae and Freddie Mac. Journal of Financial Services Research 2003, 24(1):5-29.
84. Jaffee, D.M., 2009. The U.S. subprime crisis: issues raised and lessons learned. In: Spence, M., Annez, P., Buckley, R.M., (Eds.), Urbanization and Growth. The World Bank.
85. Kau J.B., Keenan D.C., Muller W.J., Epperson J.F. A generalized valuation model for fixed-rate residential mortgages. Journal of Money, Credit and Banking 1992, 24(3):279-299.
86. Kennedy, N., Andersen, P., 1994. Household saving and real house prices: an international perspective. Bank for International Settlements working paper, no. 21.
87. Kim, Y., 2007. Rent-price ratios and the earnings yield on housing, mimeo, University of Southern California, http://www.rcf.usc.edu/~yongkim/housingyield1007.pdf.
88. Kindleberger C.P., Aliber R. Manias, Panics, and Crashes: A History of Financial Crises 2005, John Wiley and Sons. 5th edition.
89. Labaton, S., 2008. The Reckoning: Agency's 2004 Ruling Let Banks Pile up Debt, The New York Times (October 2), http://www.nytimes.com/2008/10/03/business/03sec.html.
90. Leamer, E.E., 2007. Housing is the business cycle. In: Housing, housing finance, and monetary policy, A Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 30-September 1, 2007, pp. 149-233.
91. Maclennan D., Muellbauer J., Stephens M. Asymmetries in housing and financial market institutions and EMU. Oxford Review of Economic Policy 1998, 14(3):54-80.
92. Malpezzi S., Maclennan D. The long-run price elasticity of supply of new residential construction in the United States and the United Kingdom. Journal of Housing Economics 2001, 10(3):278-306.
93. Mankiw N.G., Weil D. The baby boom, the baby bust, and the housing market. Regional Science and Urban Economics 1989, 19:235-258.
94. Mayer C., Pence K., Sherlund S.M. The rise in mortgage defaults. Journal of Economic Perspectives 2009, 23(Winter):27-50.
95. Mayer C.J., Somerville C.T. Residential construction: using the urban growth model to estimate housing supply. Journal of Urban Economics 2000, 48(1):85-109.
96. Mayer C.J., Somerville C.T. Land use regulation and new construction. Regional Science and Urban Economics 2000, 30(6):639-662.
97. Mayo, S., Sheppard, S., 1991. Housing supply and the effects of stochastic development control. Oberlin discussion paper in economics. Oberlin University.
98. Mayo S., Sheppard S. Housing supply under rapid economic growth and varying regulatory stringency: an international comparison. Journal of Housing Economics 1996, 5(3):274-289.
99. Meeks, R., 2008. Financial crisis casts shadow over commercial real estate, Federal Reserve Bank of Dallas Economic Letter, December, http://dallasfed.org/research/eclett/2008/el0812.pdf.
100. Meen, G., 2001. Modeling Spatial Housing Markets: Theory, Analysis, and Policy. Kluwer Academic Publishers, 2001.
101. Meese R., Wallace N. Testing the present value relation for housing prices: should I leave my house in San Francisco?. Journal of Urban Economics 1994, 35:245-266.
102. Miles D. Housing markets, consumption, and financial liberalization. European Economic Review 1992, 36:1093-1136.
103. Muellbauer, J., 2009. Household decisions, credit markets and the macroeconomy: implications for the design of central bank models, mimeo, Bank for International Settlements' 2009 Annual Meeting, June.
104. Muellbauer, J., 2007. Housing, credit and consumer expenditure. In: Housing, housing finance, and monetary policy, A Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 30-September 1, 2007, pp. 267-334.
105. Muellbauer, J., Lattimore, R., 1995. The consumption function: a theoretical and empirical overview. In: Pesaran, H., Wickens, M. (Eds.), Handbook of Applied Econometrics. Blackwell.
106. Muellbauer, J.M., Murata, K., forthcoming. Consumption, land prices and the monetary transmission mechanism in Japan. In: Hamada K., Kashyap, A.K., Weinstein, D.E., (Eds.), Japan's Bubble, Deflation and Long-Term Stagnation, MIT Press.
107. Muellbauer, J., Murphy, A., 1989. Why has personal saving collapsed? Credit Suisse First Boston Research Report, July, 26-77.
108. Muellbauer J., Murphy A. Booms and busts in the U.K. housing market. The Economic Journal 1997, 107:1701-1727.
109. Muellbauer J., Murphy A. Is the UK balance of payments sustainable?. Economic Policy 1990, 11:347-395.
110. Muellbauer J., Murphy A. Housing markets and the economy: the assessment. Oxford Review of Economic Policy 2008, 24(1):1-33.
111. Muellbauer, J., Williams, D., 2010. The Elephant in the Room: The Impact of Credit Conditions on Australian Consumption, Housing, and Mortgage Markets. Mimeo, Oxford University.
112. Mulligan, M., 2009. After the Bubble Comes the Overhang, The Financial Times, Special Report on Spain, June 10, p. 3.
113. Murata, K., 1999. The consumption function in Japan. DPhil thesis. Oxford University.
114. Murphy A. Explaining Irish House Prices: A Review and Some New Results 2006, Mimeo, Oxford University.
115. Paiella M. Does wealth affect consumption? Evidence for Italy. Journal of Macroeconomics 2007, 29(1):189-205.
116. Peek J. Capital gains and personal saving behavior. Journal of Money, Credit and Banking 1983, 15:1-23.
117. Piazzesi, M., Schneider, M., 2009. Momentum traders in the housing market: survey evidence and a search model. National Bureau of Economic Research working paper no. 14669.
118. Poterba J. House price dynamics: the role of tax policy and demography. Brookings Papers on Economic Activity 1991, 22(2):143-203.
119. Quigley, J.M., 2007. Regulation and property values in the United States: the high cost of monopoly. In: Ingram, G.K., Yu-Hung, H. (Eds.), Land Policies and their Outcomes. Cambridge, MA, Lincoln Institute, pp. .
120. Rajan U., Seru, A., Vig, V., 2008. The failure of models that predict failure: distance, incentives and defaults. Chicago GSB Research Paper No. 08-19.
121. Saiz, A., 2008. On Local Housing Supply Elasticity. Wharton School, University of Pennsylvania, Mimeo.
122. Scheinkman J.A., Xiong W. Overconfidence and speculative bubbles. Journal of Political Economy 2003, 111(6):1183-1219.
123. Sherlund, S.M., 2008. The past, present, and future of subprime mortgages. Board of Governors of the Federal Reserve System, FEDS working paper 2008-63.
124. Slacalek, J., 2009. What drives personal consumption? The role of housing and financial wealth. The B.E. Journal of Macroeconomics, Berkeley Electronic Press, 9 (1), 1-35.
125. Skinner J. Housing wealth and aggregate consumption. Regional Science and Urban Economics 1989, 19:305-324.
126. Skinner J. Housing and saving in the United States. Housing Markets in the United States and Japan 1994, 191-214. Chicago University Press for NBER. Y. Noguchi, J. Poterba (Eds.).
127. Skinner J. Is housing wealth a sideshow?. Papers in the Economics of Aging 1996, University of Chicago Press. D. Wise (Ed.).
128. Swank, J., Kakes, J., Tieman, A.F., 2002. The Housing Ladder, Taxation and Borrowing Constraints. DNB Report No. 9, Amsterdam.
129. Taylor, J.B., 2007. Housing and monetary policy, paper presented at Housing, Housing Finance, and Monetary Policy Symposium, sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, WY, 30 August-1 September.
130. Titman S. Urban land prices under uncertainty. American Economic Review 1985, 75:505-514.
131. U.S. Treasury, 2008. G-7 finance ministers and central bankers plan of action, October 10, 2008, Washington, D.C., USA, http://www.treas.gov/press/releases/hp1195.htm.
132. Vandell K.D. How ruthless is mortgage default? A review and synthesis of the evidence. Journal of Housing Research 1995, 6(2):245-264.
133. Vermeulen, W., Rowendal, J., 2007. Housing supply and land use regulation in the Netherlands. Tinbergen Institute Discussion Paper, TI 2007-058/3.
134. Vitner, M., Iqbal, A., 2009. What drives consumer delinquency rates? Wachovia Economics Group Special Commentary, June 18, http://www.fxstreet.com/fundamental/analysis-reports/special-commentary/2009-06-19.html.
135. von Peter G. Asset prices and banking distress: a macroeconomic approach. Journal of Financial Stability 2009, 5:298-319.
136. White W. Past financial crises, the current financial turmoil, and the need for a new macrofinancial stability framework. Journal of Financial Stability 2008, 4:307-312.
137. Williams, D.M., 2009. House Prices and Financial Liberalization in Australia. Mimeo, Oxford University, May.