Assessing Housing Market Crashes over the Past 150 years

The article delves into the predictability of housing market crashes over the past 150 years, focusing on 18 advanced economies. It utilizes the Jordà-Schularick-Taylor Macrohistory Database to assess the impact of economic variables such as the rent-to-price ratio, interest rates, income growth, mortgage growth, and population growth on the likelihood of housing market crashes. The study finds that the rent-to-price ratio is a significant leading indicator, capturing deviations from fundamental house price values. Additionally, it explores the role of short-term interest rates and mortgage growth in post-WW2 periods, highlighting the importance of monetary policy and financialization in predicting crashes. The article also discusses the relationship between housing market crashes and financial crises, providing valuable insights for policy-makers aiming to develop early warning systems and macro-prudential policies.