House prices and mortgage credit: Empirical evidence for Ireland

Abstract

In Ireland, real property prices increased at an average of 12 per cent per annum from 1996 to 2002 with residential mortgage credit also increasing substantially. In this paper, the relationship between domestic bank credit and Irish house prices is examined empirically. Using a number of econometric approaches, we find evidence of a long-run mutually reinforcing relationship. The results are used to underpin a short-run system of the housing and credit sector. Simulations are then conducted to reveal the response of house prices and credit to once-off increases in key explanatory variables. © 2007 Blackwell Publishing Ltd and The Uniyersity of Manchester.