This paper explores the stability o

This paper explores the stability of the key conditioning variables accounting for real estate
valuation before and after the crisis of 2008–2009, in a panel of 36 countries, for the period of
2005:I–2012:IV, recognizing the incidence of global financial crisis. Our paper validates the
robustness of the association between the real estate valuation of lagged current account
patterns, both before and after the crisis. The most economically significant variable in
accounting for real estate valuation changes turned out to be the lagged real estate valuation
appreciation (real estate inflation minus consumer price index [CPI] inflation), followed by
changes in the current account deficit/gross domestic product (GDP), domestic credit/GDP, and
equity market valuation appreciation (equity market appreciation minus CPI inflation). The first
three effects are economically substantial: a one standard deviation increase in lagged real
estate appreciation is associated with a 10% increase in the present real estate appreciation—
much larger than the impact of a one standard deviation increase in the current account deficit
(5%) and of the domestic credit/GDP growth (3%). Thus, the results are supportive of both
current account and credit growth channels, with the animal-spirits and momentum channels
playing the most important role in the boom and bust of real estate valuation.