Impact of Securitization on House Price Dynamics in Spain

Table of Contents

2. House price dynamics and financial crisis in Spain

2.1 House prices in the context of real economy and financial system

2.2 Determinants of house prices: Literature review

2.3 Why house prices in Spain did not drop more significantly?

2.4 Role of securitization in house price dynamics: Motivation

3. Covered bonds and their link to house price dynamics

3.1 What is covered bonds

3.2 Cédulas Hipotecarias and mortgage financing in Spain

3.3 Behaviour of the covered bond markets under stress

3.4 Dynamics of covered bonds and implications for financial stability

3.5 Relationship between covered bonds and housing market

3.6 Data analysis: Spain

3.7 Data analysis: Selected countries

4. Empirical analysis

4.1 Motivation

4.2 Introduction to nonlinear modelling

4.2 Options for ST(V)AR models and its empirical practice

4.4 Empirical model of house price dynamics and covered bonds

Research Objectives and Key Topics

The thesis aims to analyze the asymmetrical dynamics of Spanish house prices during the recent economic cycle, focusing on the role of covered bonds as a potential corrective mechanism during market downturns and an enhancement factor during booms. The research investigates whether these instruments, which remained resilient during the financial crisis, contributed to the observed rigidities in price adjustments by influencing credit availability and market liquidity within a nonlinear framework.

• Asymmetric house price dynamics in Spain
• The role of covered bonds in credit and housing market cycles
• Nonlinear regime switching models in macroeconomics
• Comparative analysis of securitization instruments (Covered Bonds vs. MBS)
• Financial stability implications of asset encumbrance

Excerpt from the Book

Summary of Chapters

2. House price dynamics and financial crisis in Spain: This chapter reviews the transmission mechanisms between the real economy, the housing market, and the financial sector, highlighting the specific drivers of the Spanish housing boom and the subsequent market rigidities.

3. Covered bonds and their link to house price dynamics: This section details the fundamental characteristics of covered bonds, compares them to mortgage-backed securities, and analyzes their behavior under market stress and their role in overall financial stability.

4. Empirical analysis: This chapter introduces the methodology for nonlinear modeling, specifically the smooth transition vector autoregressive (STVAR) framework, and presents the results of the model estimations regarding the impact of covered bonds on house price dynamics.

Keywords

House price dynamics, credit cycle, housing market rigidities, covered bonds, securitization, smooth transition vector autoregressive models, asymmetric behaviour, financial stability, asset encumbrance, Spain, mortgage financing, Basel III, nonlinear modeling, regime switching, credit market.

Frequently Asked Questions

What is the core focus of this thesis?

The thesis examines the asymmetric behavior of Spanish house prices throughout the last cycle and specifically evaluates how the issuance of covered bonds influenced this dynamics during both boom and bust phases.

Which sectors does the research address?

The study focuses on the intersection of the housing market, the credit sector, and the broader real economy, with a specific focus on financial instruments like covered bonds.

What is the primary research goal?

The goal is to determine if covered bonds act as a source of market correction during downturns or an enhancement factor during upturns, particularly in the context of the recent financial crisis.

What methodology is employed for the analysis?

The research uses a nonlinear framework, specifically applying vector smooth transition autoregressive (STVAR) models to capture the regime-switching behavior of the variables involved.

What is covered in the main body of the work?

The main body covers the theoretical determinants of house prices, a detailed analysis of covered bonds versus other securitization products, and an empirical assessment of the relationship between these bonds and house price cycles.

Which keywords define this study?

Key terms include house price dynamics, covered bonds, securitization, asymmetric behavior, nonlinear modeling, and financial stability.

How do covered bonds differ from mortgage-backed securities?

The thesis highlights that covered bonds remain on the issuer's balance sheet and provide double recourse to investors, whereas mortgage-backed securities often involve removing assets from the balance sheet, leading to distinct risk profiles.

What unique data source does the author use?

The author utilizes a non-public, monthly dataset on covered bond issues obtained from the Asociación Hipotecaria Española, which allows for a more precise analysis than standard annual data.

What conclusion does the author reach regarding covered bonds?

The author concludes that while covered bonds can provide necessary liquidity during market freezes, they also introduce risks of asset encumbrance and can potentially exacerbate procyclicality if they are over-relied upon in a falling market.