Mortgage Fund Flows, Capital Appreciation, and Real Estate Cycles

Posted: 21 Aug 2013

See all articles by Marcel Arsenault

Marcel Arsenault

Independent

Jim Clayton

University of Connecticut School of Business; Cornerstone Real Estate Advisers

Liang Peng

Smeal College of Business, The Pennsylvania State University

Multiple version iconThere are 2 versions of this paper

Date Written: August 12, 2013

Abstract

This paper provides strong evidence for a positive feedback loop between property prices and mortgage supply, using data from the U.S. commercial property and mortgage markets over the 1991 to 2011 period. The empirical analyses control for the endogeneity of property prices, mortgage flows, mortgage interest rates, and loan to value ratios, and provide two main findings. First, exogenous increases in mortgage supply, measured with the growth of the CMBS market, significantly reduce property cap rates. Second, volatility of past price changes and the "biggest loss" in property values in the past significantly affect mortgage supply. This positive feedback loop may be an important driving force for real estate cycles.

Keywords: real estate cycles, commercial real estate, mortgage fund flows, positive feedback loop

JEL Classification: G12, E32, E44

Suggested Citation

Arsenault, Marcel and Clayton, James F. and Peng, Liang, Mortgage Fund Flows, Capital Appreciation, and Real Estate Cycles (August 12, 2013). Journal of Real Estate Finance and Economics, Vol. 47, No. 2, 2013. Available at SSRN: https://ssrn.com/abstract=2309058

Marcel Arsenault

Independent ( email )

No Address Available

James F. Clayton

University of Connecticut School of Business ( email )

Storrs, CT

Cornerstone Real Estate Advisers ( email )

One Financial Plaza, Suite 1700
Hartford, CT 06103
United States

Liang Peng (Contact Author)

Smeal College of Business, The Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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