We examine the characteristics and co-movement of cycles in house prices, credit, real activity, and interest rates in advanced economies during the past 25 years, using a dynamic generalized factor model. House price cycles generally lead credit and business cycles over the long term, while in the short to medium term the relationship varies across countries. Interest rates tend to lag other cycles at all time horizons. While global factors are important, the U.S. business cycle, house price cycle and interest rate cycle generally lead the respective cycles in other countries over all time horizons, while the U.S. credit cycle leads mainly over the long term.

This paper compiles and discusses stylized facts on the characteristics and co-movement of cycles in house prices, bank credit, real activity and interest rates in advanced economies during the past 25 years. The focus is on two questions: 1. How closely has the cyclical behavior of house prices, bank credit, and real economic activity been synchronized over different time horizons within countries? Are these cyclical patterns consistent with modern financial accelerator theories? How do they relate to interest rate cycles? 2. How closely has the cyclical behavior of house prices, bank credit and real economic activity been synchronized across countries? Is there evidence of some countries’ cycles leading other countries’ cycles? On the first question, the business cycle literature points to a high degree of co-movement in house prices, bank credit, and real activity (for example, Stock and Watson, 1999). Bank credit and house prices typically rise during economic upswings, as firms and consumers demand more credit to expand investment and consumption; and during downturns, these trends reverse. The financial accelerator theory suggests that financial cycles are likely to have a larger amplitude than real activity cycles and that the financial accelerator effects tend to amplify real economic cycles owing to the procyclicality of bank lending. Such procyclicality arises because changes in asset prices affect external finance premium (Bernanke and Gertler, 1989), the value of the collateral (Kiyotaki and Moore, 1997)1 and/or bank leverage (Adrian and Shin, 2008; Berger and Bouwman, 2008).