Mortgage Credit Policy as Stimulus and the Rise of Shadow Credit

Abstract

Contrary to the prevailing view that mortgage credit policies influence house prices primarily through credit availability, credit policies can directly impact house prices by shaping homebuyers' expectations through signaling. After South Korean authorities relaxed LTV/PTI limits to unprecedented levels and unusually introduced these changes as a housing market stimulus, areas constrained by these limits experienced faster mortgage credit growth. However, housing booms emerged in other areas: stimulus-sensitive, unconstrained regions. These booms were fueled by elevated house price expectations and speculative home purchases financed by unregulated shadow credit. These findings underscore the pivotal role of messages embedded in credit policies, particularly the signaling of policymakers' lenient stance on housing booms and speculation. They also highlight the significance of shadow credit in driving housing market outcomes. 

Keywords: House Prices, Macroprudential Policy, Mortgages, Shadow Credits

JEL Classification: D84, E61, G21, G28, G51, R21, R31, R38