Transforming real estate bubble risks into financial crisis: the moderating effect of bank credits

Purpose This study aims to investigate how risks arising from real estate bubbles evolve into financial crises, with a particular attention to the moderating role of bank credit across countries with different levels of financial development. Design/methodology/approach Using a panel data set covering 21 countries from 2003 to 2024, this study uses logistic regression models to estimate the probability of financial crises, incorporating macro-financial indicators and cross-country heterogeneity. Findings The findings reveal that while short-term increases in housing price may temporarily reduce crisis risks, lagged housing price significantly heightens systemic vulnerabilities, especially in advanced economies. In addition, bank credit shows a nonlinear relationship with crisis risk, but does not significantly moderate the impact of housing bubbles on financial crises. Research limitations/implications The study’s scope is limited to equity market crashes as a proxy for financial crises. Moreover, it uses a quarterly framework for identifying financial crises, which may mask important short-term fluctuations and misrepresent the true severity of market downturns. Practical implications This research highlights the need for stronger financial supervision during credit expansion, prudent monetary policy and enhanced institutional capacity building to ensure macroeconomic stability and mitigate systemic risks associated with credit growth and real estate fluctuations. Originality/value This paper contributes to the literature by offering a novel analysis of lagged effects of real estate bubbles on financial crises as well as the nonlinear moderating role of bank credit on this relationship.