Demand for Housing Loans in Albania


Abstract Demand for residential mortgages has been the subject of many discussions in the literature. The demand for homes will in turn depend on home prices and the cost of alternative house arrangement. The ability of the consumers to buy should be reflected in their personal income and the already existing burden of nonmortgage consumer installment debt. As personal income rises or the burden of debt declines, the demand for mortgage funds should increase. In the models on credit demand, real GDP, prices and interest rates are commonly the explanatory variables, although there is no “standard” model which would be widely used. However, modeling and estimation techniques in this area are complicated due to difficulties with separating demand side effects from supply side effects (see e.g. Rajan 1994). The financial crisis in the 2007 has caused a slowdown in monetary expansion. O’Brein and Browne (1992) sited that one factor that can contribute to the slowdown in monetary transaction is a reduction in bank lending. It is understood that a slowdown in loans reflects influences on both the demand and the supply side. On the demand side a slowdown in economic activity and the subsequent loss of purchasing power by many individuals has disqualified them from being able to qualify for access to loans. This has resulted in dramatic fall in loans demanded. According to O’Brein and Browne (1992), on the supply side, the decline in credit is exacerbated by two channels on the supply side i) a deterioration in asset quality and ii) stricter attitudes of regulators, especially through more stringent capital standard. In this paper I will study how the GDP has influence the demand for mortgage finance in Albania during the period of 2007-2009. This is one side of my PhD thesis regarding the Supply and Demand for housing loans in Albania.
Keywords credit, financial crisis, mortgages, GDP
JEL Classification E51, G01, G21, E23
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