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SERC/Urban and Spatial Programme Discussion Paper
Housing Markets and the Financial Crisis of 2007-2009: Lessons for the Future
John V. Duca, John Muellbauer and Anthony Murphy April 2010
Paper No' SERCDP0049:
Full Paper (pdf)

JEL Classification: R21; G18; E51; E21; C51; C52

Tags: financial crisis; house prices; credit crunch; subprime mortgages

An unsustainable weakening of credit standards induced a US mortgage and housing bubble whose consumption impact was amplified by innovations altering the collateral role of housing. In countries with more stable credit standards, any overshooting of construction and house prices owed more to traditional housing supply and demand factors. Housing collateral effects on consumption varied, depending on the liquidity of housing wealth. Lessons include recognizing the importance of financial innovation, regulation, housing policies, and global financial imbalances for fueling credit, construction, house price and consumption cycles that vary across countries.