Housing Market Contagion: Evidence from Bank Branching Networks

34 Pages Posted: 29 Jun 2016

See all articles by Kristoph Kleiner

Kristoph Kleiner

Indiana University - Kelley School of Business - Department of Finance

Date Written: June 20, 2015

Abstract

The impact of house price declines on collateral values for consumer debt is well documented; we are the first to highlight a complementary effect through the bank branching network. Our identification strategy depends on following price declines in one housing market to all bank branches outside the state. Using household-level data we find that real estate shocks to the bank significantly impact consumer borrowing (relative to other households in the county), especially for financial institution's without access to funding markets and when the loan is more difficult to securitize with the GSEs. The results cannot be explained by other bank health measures or local demand shocks. Conditional on a loan approval, negative real estate shocks result in higher interest rates and lower loan-to-income ratios. Specifically, a ten percent decline in real estate prices transmits to a 7% decline in primary mortgage approval, a 23% decline in HELOCs, and a 14% decline in refinances.

Keywords: Mortgage Markets, Banking, Credit Supply, House Prices

JEL Classification: G21, R21, R30

Suggested Citation

Kleiner, Kristoph, Housing Market Contagion: Evidence from Bank Branching Networks (June 20, 2015). Kelley School of Business Research Paper No. 16-54, Available at SSRN: https://ssrn.com/abstract=2704079 or http://dx.doi.org/10.2139/ssrn.2704079

Kristoph Kleiner (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

HOME PAGE: http://sites.google.com/site/kristophkleiner

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