Mortgage Credit Policy as Stimulus and the Rise of Shadow Credit

73 Pages Posted: 3 Dec 2024 Last revised: 1 Jan 2025

Date Written: October 01, 2024

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

Suggested Citation

Park, Seongjin, Mortgage Credit Policy as Stimulus and the Rise of Shadow Credit (October 01, 2024). UNSW Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4982133 or http://dx.doi.org/10.2139/ssrn.4982133

Seongjin Park (Contact Author)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

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