Mortgage Fund Flows, Capital Appreciation, and Real Estate Cycles

This paper hypothesizes and analyzes a positive feedback loop between commercial real estate capital appreciation and commercial mortgage capital supply. Using quarterly U.S. data from 1978 to 2008, this paper finds that past real estate investment performance positively affects mortgage fund flows, which this paper shows measure changes in mortgage capital supply, and likewise, mortgage fund flows affect property valuation in the same quarter. The documented positive feedback loop is likely an important driving force behind real estate cycles