Predictive Analytics: The Great Mortgaging - Housing Finance, Crises, and Business Cycles

A new paper entitled "The Great Mortgaging - Housing Finance, Crises, and Business Cycles" crunches the data and finds powerful evidence that credit buildup particularly with mortgage lending is the strongest predictor signal of future financial crisis events.

Here is a summary:

1. Mortgage lending was 1/3 of bank balance sheets about 100 years ago, but in the postwar era mortgage lending has now risen to 2/3, and rapidly so in recent decades.

2. Credit buildup is predictive of financial crisis events, but in the postwar era it is mortgage lending that is the strongest predictor of this outcome.

3. Credit buildup in expansions is predictive of deeper recessions, but in the postwar era it is mortgage lending that is the strongest predictor of this outcome as well.