The Causal Effect of House Prices on Mortgage Demand and Mortgage Supply: Evidence from Switzerland

52 Pages Posted: 8 Apr 2016

See all articles by Christoph Basten

Christoph Basten

University of Zurich; Swiss Finance Institute; CESifo (Center for Economic Studies and Ifo Institute)

Cathérine Koch

Bank for International Settlements (BIS)

Date Written: March 2016

Abstract

We identify the causal effect of house prices on mortgage demand and supply in Switzerland by exploiting exogenous shocks to immigration and thereby to house prices. Detailed micro data on individual requests and offers allow to close down possible other channels. We find that within the same interest rate environment 1% higher house prices imply 0.52% higher mortgage amounts. The full partial correlation of 0.78% suggests also positive feedback from mortgage volumes to house prices. While we find higher house prices to increase mortgage demand, banks respond if anything with fewer offers and higher rates, especially later in the boom and for highly leveraged households.

Keywords: House prices, mortgage demand, mortgage supply, IV

JEL Classification: D14, G21, J61, R21

Suggested Citation

Basten, Christoph and Koch, Catherine, The Causal Effect of House Prices on Mortgage Demand and Mortgage Supply: Evidence from Switzerland (March 2016). BIS Working Paper No. 555. Available at SSRN: https://ssrn.com/abstract=2756474

Christoph Basten (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute

c/o University of Geneva
40 Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Catherine Koch

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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