Mortgage Flows and Commercial Property Price Cycles

Abstract

In this article, Clayton and Peng hypothesize that commercial real estate value appreciation affects commercial mortgage supply, which helps constitute a feedback loop between mortgage supply and real estate values that drives real estate cycles. Clayton and Peng estimate a two-equation reduced form of a structural model of mortgage demand and supply, using quarterly U.S. data from 1978 to 2008. The results indicate that past real estate value appreciation positively affects mortgage fund flows but not mortgage interest rates, which substantiates the effect of real estate value appreciation on the supply of mortgages.