The Relationship Between Mortgage Markets and House PricesDoes Finalcial Instability Make the Diffrence?

Resumen

During the late 1990s ad up to 2007 several countries experienced sharp increases in house price. These episodes are usually mentiones among the causes of the recent world's economic and financial turmoil. the dramatic growth in bank lending during this period has been broadly held responsible for these market dynamics. However, the empirical relationship between mortgage credit and house prices remains largely unexplained. This paper analyses the relationship between house prices and mortgaged credit in Spain, a country where house prices and mortgage credit have experienced a high growth in recent years prior to the financial crisis. We wmploy a quaterly databe from 1988Q4 to 2008Q4. Usin cointegration analysis and Vector-Error-Correction (VEC) models, we find that both houses prices and mortgage credit interact in the short and in the long-run. the results also suggest that there were a regime shift in mortgaged lending in Spain in 2001-where mortgage credit securitization substantially grew- that increased the economic significance of the impact of motgage lending on house prices.