Housing Market Dynamics

Rady, Sven und Ortalo-Magné, François (April 2001): Housing Market Dynamics. On the Contribution of Income Shocks and Credit Constraints. Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2001-9 Review of Economic Studies, 73

Abstract

This paper presents a dynamic theory of housing market fluctuations. It develops a life-cycle model where households are heterogeneous with respect to income and preferences, and mortgage lending is restricted by a down-payment requirement. The market interaction of young credit-constrained households with older or richer unconstrained households generates the following results. (1) Current income of young credit-constrained households affects housing prices independently of aggregate income. (2) Housing prices and the number of housing transactions are positively correlated. (3) Housing prices over-react to income shocks. (4) A relaxation of the down-payment constraint triggers a boom-bust cycle. These results are consistent with patterns observed in the US and the UK.

• Dokumententyp: Paper
• Keywords: Housing Demand ; Income Fluctuations ; Overlapping Generations ; Collateral Constraint
• Fakultät: Volkswirtschaft ; Volkswirtschaft > Munich Discussion Papers in Economics ; Volkswirtschaft > Munich Discussion Papers in Economics > Mikroökonomik ; Volkswirtschaft > Munich Discussion Papers in Economics > Industrieökonomik ; Volkswirtschaft > Lehrstühle > Seminar für Dynamische Modellierung (aufgelöst)
• Themengebiete: 300 Sozialwissenschaften > 300 Sozialwissenschaft, Soziologie ; 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: E32, G12, G21, R21
• Sprache: Englisch