English, Article, Journal or magazine article edition: Housing Market Fluctuations in a Life-Cycle Economy with Credit Constraints Francois Ortalo-Magne; Sven Rady

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Bookmark: http://trove.nla.gov.au/version/45333
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Housing Market Fluctuations in a Life-Cycle Economy with Credit Constraints
Author
  • Francois Ortalo-Magne
  • Sven Rady
Physical Description
  • preprint
Notes
  • This paper presents a first step towards a new theory of housing market fluctuations. We develop a life-cycle model where agents face credit constraints and their housing consumption is restricted to a discrete set of possibilities. The market interaction of young credit constrained agents climbing the property ladder with old agents trading down, generates co-movements of aggregate house prices, volume of transactions and income, consistent with the patterns observed in the U.S. and the U.K. Under plausible assumptions, the model reproduces the slight lead of transaction volume over the other two series as documented in the data. Our theory asserts that the fluctuations in housing prices depend crucially on fluctuations in the current income of young households (the first-time buyers). Thus, it sheds light on why housing prices are more volatile than GDP, and why they exhibit some degree of predictability in a market where households optimize over the timing of their transactions.
  • Housing Demand, Income Fluctuations, Overlapping Generations, Collateral Constraint
  • RePEc:wpa:wuwpfi:9810003
  • This paper presents a first step towards a new theory of housing market fluctuations. We develop a life-cycle model where agents face credit constraints and their housing consumption is restricted to a discrete set of possibilities. The market interaction of young credit constrained agents climbing the property ladder with old agents trading down, generates co-movements of aggregate house prices, volume of transactions and income, consistent with the patterns observed in the U.S and the UK Under plausible assumptions the model reproduces the slight lead of transaction volume over the other two series as documented in the data. Our theory asserts that the fluctuations in housing prices depend crucially on fluctuation in the current income of young household the first-time buyers). Thus, it sheds light on why housing prices are more volatile than GDP, and why they exhibit some degree of predictability in a market where households optimise over the timing of their transaction.
  • RePEc:fmg:fmgdps:dp296
Language
  • English
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