Real Estate Valuation, Current Account and Credit Growth Patterns, Before and after the 2008-9 Crisis

35 Pages Posted: 29 Jun 2013 Last revised: 9 Jun 2023

See all articles by Joshua Aizenman

Joshua Aizenman

University of Southern California - Department of Economics

Yothin Jinjarak

Victoria University of Wellington - Te Herenga Waka - School of Economics & Finance

Date Written: June 2013

Abstract

We explore the stability of the conditioning variables accounting for the real estate valuation before and after the crisis of 2008-9, in a panel of 36 countries, recognizing the crisis break. We validate the robustness of the association between the real estate valuation and lagged current account patterns, both before and after the crisis. The most economically significant variable in accounting for real estate valuation changes turned out to be the lagged real estate valuation appreciation (real estate inflation minus CPI inflation), followed by lagged declines of the current account/GDP, lagged domestic credit/GDP growth, and lagged equity market valuation appreciation (equity market appreciation minus CPI inflation). A one standard deviation increase in lagged real estate appreciation is associated with a 10 % increase in the present real estate appreciation, larger than the impact of a one standard deviation deterioration in the lagged current account/GDP (5%) and of the lagged domestic credit/GDP growth (3%). The results are supportive of both current account and credit growth channels, with the momentum channels playing the most important role. Smaller current account/GDP surpluses or larger deficits may serve as warning signals, especially when coinciding with credit expansion and real estate appreciation during the past several quarters.

Suggested Citation

Aizenman, Joshua and Jinjarak, Yothin, Real Estate Valuation, Current Account and Credit Growth Patterns, Before and after the 2008-9 Crisis (June 2013). NBER Working Paper No. w19190, Available at SSRN: https://ssrn.com/abstract=2287048

Joshua Aizenman (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

Yothin Jinjarak

Victoria University of Wellington - Te Herenga Waka - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6001
New Zealand

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