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.
| Item Type: | Paper |
|---|---|
| Keywords: | Housing Demand ; Income Fluctuations ; Overlapping Generations ; Collateral Constraint |
| Faculties: | Economics Economics > Munich Discussion Papers in Economics Economics > Munich Discussion Papers in Economics > Micro-Economics Economics > Munich Discussion Papers in Economics > Industrial Organization Economics > Chairs > Chair of Dynamic Economic Theory (closed) |
| Subjects: | 300 Social sciences > 300 Social sciences, sociology and anthropology 300 Social sciences > 330 Economics |
| JEL Classification: | E32, G12, G21, R21 |
| URN: | urn:nbn:de:bvb:19-epub-20-9 |
| Language: | English |
| Item ID: | 20 |
| Date Deposited: | 13. Apr 2005 |
| Last Modified: | 06. Nov 2020 18:12 |
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