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Banks, Lies and Bricks: The Determinants of Home Value Inflation in Spain during the Housing Boom
Díaz Serrano, Lluís
Universitat Rovira i Virgili. Departament d'Economia; Universitat Rovira i Virgili. Centre de Recerca en Economia Industrial i Economia Pública
During the first decade of this century, Spain experienced the most important economic and housing boom in its recent history. This situation led the lending industry to dramatically expand through the mortgage market. The high competition among lenders caused a dramatic lowering of credit standards. During this period, lenders operating in the Spanish mortgage market artificially inflated appraised home values in order to draw larger mortgages. By doing this, lenders gave financially constrained households access to mortgage credit. In this paper, we analyze this phenomenon for this first time. To do so, we resort to a unique dataset of matched mortgage-dwelling-borrower characteristics covering the period 2004–2010. Our data allow us to construct an unbiased measure of property’s over-appraisal, since transaction prices in our data also includes any potential side payment in the transactions. Our findings indicate that i) in Spain, appraised home values were inflated on average by around 30% with respect to transaction prices; ii) creditconstrained households were more likely to be involved in mortgages with inflated house values; and iii) a regional indicator of competition in the lending market suggests that inflated appraisal values were also more likely to appear in more competitive regional mortgage markets. Keywords: Housing demand, appraisal values, house prices, housing bubble, credit constraints, mortgage market. JEL Classification: R21, R31
332 - Economia regional i territorial. Economia del sòl i de la vivenda
Habitatges -- Oferta i demanda
Mercat immobiliari
Habitatge -- Preus
Préstecs hipotecaris
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33 p.
Working Paper
Universitat Rovira i Virgili. Departament d'Economia
Documents de treball del Departament d'Economia;2015-09

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