Fannie Mae Foundation
Although there is considerable evidence that pressure on commercial banks' capital positions in the early 1990s reduced their real estate lending, there is little systematic evidence that real estate activity was appreciably affected by the bank capital crunch. Using data for 1982 through 1992 by state, we estimated the effects of the bank capital crunch and of national and local economic conditions on building permits, construction contracts, housing starts, mortgage originations, and sales. We found significant effects of the capital crunch and of various economic conditions on commercial and residential real estate activity. The estimated effects on permits and construction contracts in residential real estate markets were at least as large as those in commercial real estate markets. Although lending for residential development and construction apparently was reduced by the capital crunch, secondary markets for residential mortgages at least partially shielded mortgage originations and home sales from banks' capital shortfalls.
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