Credit Expansion, Housing Cycles and Financial Stability: Cross-Country Evidence on Boom-and-Bust Dynamics, 1995 to 2025

Whether credit expansion systematically drives house price booms, raises the probability of subsequent busts, and impairs bank balance sheets remains an open empirical question. Historical evidence and the financial cycle literature point in that direction, but few studies analyse the three links within a single framework or cover the corrections that followed the post-pandemic boom. This paper assembles an annual panel of 57 economies for 1995 to 2025 from the Bank for International Settlements residential property price series and the World Bank World Development Indicators, and identifies 37 real house price busts, defined as cumulative real declines of at least 15 percent from a local peak within six years. Country fixed effects regressions show that a one percentage point increase in the ratio of private credit to GDP raises real house price growth in the following year by 0.17 to 0.21 percentage points. Logistic models predict busts up to three years ahead with an area under the ROC curve of 0.79 to 0.84; the odds of a bust are 3.8 times higher after a credit boom and 2.4 times higher after a house price boom, and the bust rate reaches 30 percent when both booms coincide, compared to 5 percent otherwise. During busts, the ratio of non-performing loans rises by about one percentage point per year more than in other periods, with an additional effect of the preceding credit expansion. The results are robust across advanced, euro area and emerging economies, to the low interest rate period after 2008 and to alternative bust definitions, and they provide quantitative benchmarks for countercyclical macroprudential policy.