The Effect of Credit Conditions on the Dutch Housing Market

35 Pages Posted: 18 Nov 2014

See all articles by Marc Francke

Marc Francke

University of Amsterdam - Faculty of Economics and Business (FEB); Ortec Finance

Alex Van de Minne

University of Connecticut - Department of Finance

Johan Verbruggen

De Nederlandsche Bank - Research Department

Date Written: November 14, 2014

Abstract

It is widely perceived that the supply of mortgages, especially since the extensive liberalization of the mortgage market of the 1980s, has had implications for the housing market in the Netherlands. In this paper we introduce a new method to estimate a credit condition index (CCI). The CCI represents changes in the supply of credit over time, apart from changes in interest rates and income. It has been estimated by an unobserved component in an error-correction model in which the average amount of new provided mortgages per period is explained by the borrowing capacity and additional control variables. The model has been estimated on data representing first time buyers (FTB). For FTB we can assume that the housing and non-housing wealth is essentially zero. The CCI has subsequently been used as an explanatory variable in an error-correction model for house prices representing not only FTB, but all households. The models have been estimated on quarterly data from 1995 to 2012. The estimated CCI has a high correlation with the Bank Lending Survey, a quarterly survey in which banks are asked whether there is a tightening or relaxation of (mortgage) lending standards compared to the preceding period. The CCI has explanatory power in the error-correction model for house prices. In real terms house prices declined about 25% from 2009 to 2012. The estimation results show that nearly half of this decline can be attributed to a decline in the CCI.

Keywords: lending standards, financial liberation, housing prices

JEL Classification: C32, E44, E51, G21

Suggested Citation

Francke, Marc and Van de Minne, Alex and Verbruggen, Johan, The Effect of Credit Conditions on the Dutch Housing Market (November 14, 2014). De Nederlandsche Bank Working Paper No. 447, Available at SSRN: https://ssrn.com/abstract=2526144 or http://dx.doi.org/10.2139/ssrn.2526144

Marc Francke (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

HOME PAGE: http://www.uva.nl/en/contact/staff/item/m.k.francke.html?f=francke

Ortec Finance ( email )

Orly Centre
Barajasweg 10
Amsterdam, 1043 CP
Netherlands
+ 31 20 7009 700 (Phone)
+ 31 20 7009 701 (Fax)

HOME PAGE: http://www.ortec-finance.com

Alex Van de Minne

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Johan Verbruggen

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
54
Abstract Views
373
rank
404,782
PlumX Metrics