Home financing loans and their relationship to real estate bubble: An analysis of the U.S. mortgage market

It is well reported that the much fluctuations in Real Estate (RE) markets globally are a result of unequal risk burden caused by deficiencies of financial system and speculative nature of those markets. However, the evidence is mixed in terms of whether high house prices lead to over financing of mortgages or vice versa. This work attempted to resolve this issue by using ARDL approach handy to use for time series data for the United States. The empirical results of the work have some noteworthy theoretical and policy implications. In the short run, house prices seem to be causing an increase in money supply and influencing house financing decisions. However in the long run, availability of new mortgage loans and interest impact seem to dominate. Thus, the implication from the study suggests that we have to consider both the short and the long run aspects of policy and its influence on all sectors of the economy while making such policy decisions