The causal effect of house prices on mortgage demand and mortgage supply: Evidence from Switzerland

We identify the causal effect of house prices on mortgage demand and supply in Switzerland by exploiting exogenous shocks to immigration and thereby to house prices. Detailed micro data on individual requests and offers allow to close down possible other channels. We find that 1% higher house prices imply 0.52% higher mortgage amounts. The full partial correlation of 0.78% suggests also positive feedback from mortgage volumes to house prices. While we find higher house prices to increase mortgage demand, banks respond if anything with fewer offers and higher rates, especially later in the boom and for highly leveraged households.