Residential mortgages, the real estate market, and economic growth: evidence from Europe
Journal of Property Investment & Finance
ISSN: 1463-578X
Article publication date: 17 August 2018
Issue publication date: 27 November 2018
Abstract
Purpose
The purpose of this paper is to evaluate the impact of macroeconomic condition and real estate price trend on the amount of residential loan.
Design/methodology/approach
The paper using a sample of 16 European Countries for the time period 2007–2015 evaluates the impact of change in the gross domestic product (GDP) growth and the inflation rate on the amount of residential loans. The analysis is performed by using a vector autoregressive (VAR) and generalized VAR approach for the full sample and for each country considered.
Findings
For a short-term horizon, shocks to mortgages, the house price index (HPI) and the GDP have a positive effect on the GDP, a shock to the amount of mortgages has a positive effect on the mortgage supply and a shock to the GDP has a negative effect on HPI. The main results for the long-term horizon are that a GDP shock has a positive and persistent effect on the amount of mortgages, a shock to HPI has a negative and persistent effect on mortgages and a shock to the amount of mortgages seems to have no persistent effect on the GDP or the HPI. Moreover, the analysis shows that a spillover risk among countries exists and a GDP shock in a European area has an effect on the GDP, real estate prices and residential mortgages in almost all European countries.
Practical implications
Results obtained show that both macroeconomic and housing prices shocks matter for the real estate lending and the effect are different in the short- and in the medium–long-term horizon. Results are also different country by country and they are affected by the level of financial development of the country.
Originality/value
The paper studies a lending crisis period and evaluates for the European market the impact of shock on macro-variables for mortgages focusing the attention for the first time only on residential mortgages.
Keywords
Acknowledgements
The authors would like to thank Luca Bertalot (Secretary General) and Daniele Westig (Economic Adviser) of the European Mortgage Federation and European Covered Bond Council for providing Hypostat data. This paper is the result of the authors’ common efforts and continuous exchange of ideas. The individual parts of the paper can be acknowledged as follows: the introduction and conclusion were worked out by Umberto Filotto and Claudio Giannotti, literature review by Gianluca Mattarocci and empirical analysis by Xenia Scimone.
Citation
Filotto, U., Giannotti, C., Mattarocci, G. and Scimone, X. (2018), "Residential mortgages, the real estate market, and economic growth: evidence from Europe", Journal of Property Investment & Finance, Vol. 36 No. 6, pp. 552-577. https://doi.org/10.1108/JPIF-09-2017-0060
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited