Assessing Housing Market Crashes over the Past 150 years

We assess the predictability of housing market crashes in 18 countries over the years 1870-2020. We find that the rent-to-price ratio is a leading indicator and the most significant predictor of housing market crash episodes. The stance of monetary policy, as proxied by the short-term interest rate, is also an important determinant of the probability of housing market crashes in the post WW2 period. Lower rent-to-price ratios and higher short-term interest rates increase the probability of housing market crashes. In the post-80 s period which is characterized by a significant increase of mortgage lending to households mortgage growth is also an important factor that elevates the probability of crashes in housing prices.