ECONOMIC ACTIVITY, CREDIT MARKET CONDITIONS, AND THE HOUSING MARKET

In this paper, we assess the characteristics of the housing market and its main determinants. Using data for 20 industrial countries over the period 1970Q1-2012Q2 and a discrete-time Weibull duration model, we find that the likelihood of the end of a housing boom or a housing bust increases over time. Additionally, we show that the different phases of the housing market cycle are strongly dependent on the economic activity, but credit market conditions are particularly important in the case of housing booms. The empirical findings also indicate that although housing booms have similar lengths in European and non-European countries, housing busts are typically shorter in European countries. The use of a more flexible specification for the hazard function that is based on cubic splines suggests that it evolves in a nonlinear way. From a policy perspective, our study can be useful for predicting the timing and the length of housing boom-bust cycles. Moreover, it highlights the importance of monetary policy by influencing lending rates and affecting the likelihood of occurrence of housing booms.