Do Lenders Make Less-Informed Investments in High-Growth Housing Markets?

By Sophia Chen, Lev Ratnovski, Yangfan Sun

May 27, 2021

Preview Citation

Format: Chicago

Sophia Chen, Lev Ratnovski, and Yangfan Sun. Do Lenders Make Less-Informed Investments in High-Growth Housing Markets?, (USA: International Monetary Fund, 2021) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Nonlocal mortgage lenders with greater exposure to high-growth housing markets accept fewer loan applications in these markets and experience greater stock return volatility. When these lenders expand to high-growth markets, they also ration credit to a signiﬁcantly greater degree than when they ex-pand to other markets. Mean-variance analyses show that nonlocal lenders’ exposure to high-growth markets is associated with more risk, more eﬃciency, and more return on mortgage portfolios. Overall, these results imply that expansion to high-growth markets leads to a decline in screening and riskier investment by nonlocal lenders, which may reﬂect a risk–return tradeoﬀ in their portfolio strategy.

Subject: Financial institutions, Housing prices, Loans, Mortgages, Prices

Keywords: High-growth market, Housing prices, Lender control, Loans, Mortgages, Nonlocal lender, Nonlocal mortgage lender, Return volatility

Publication Details

Pages:

53
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/151
Stock No:

WPIEA2021151
ISBN:

9781513573380
ISSN:

1018-5941

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