Housing and Credit Markets in Italy in Times of Crisis

44 Pages Posted: 9 Feb 2017

Date Written: October 27, 2016

Abstract

We investigate the determinants of Italian house prices and residential investments in a structural model with possible disequilibria in the market for lending to both households and firms in the building sector. Based on a structural approach that takes into account the multi-fold relationships between demand and supply within the housing and the credit markets, we find that, while house prices react mostly to disposable income and demographic pressures, lending conditions also exert a significant impact. During the recent crises the contribution of declining bank rates to household lending was limited, due to the greater deleveraging needs of Italian banks. Conventional monetary policy has supported house prices, albeit with declining intensity as policy rates have gradually approached the lower bound. At the same time, unconventional monetary policy measures have sustained house prices via their effect on Italian sovereign spreads, which have shrunk by a sizeable amount since they peaked in the period between late 2011 and early 2013. Finally, we find that house price developments stayed in line with the fundamentals, during both the global financial and sovereign debt crisis, with only minor and occasional discrepancies.

Keywords: house prices, credit, system of simultaneous equations

JEL Classification: E52, G21, R20, R30

Suggested Citation

Loberto, Michele and Zollino, Francesco, Housing and Credit Markets in Italy in Times of Crisis (October 27, 2016). Bank of Italy Temi di Discussione (Working Paper) No. 1087, Available at SSRN: https://ssrn.com/abstract=2914244 or http://dx.doi.org/10.2139/ssrn.2914244

Michele Loberto

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Francesco Zollino (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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