Review of Economic Studies Vol. 73 No. 2 2006
Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints*
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 order 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-but cycle. These results are consistent with patterns observed in the US and the UK.
- DOI
- 10.1111/j.1467-937x.2006.383_1.x
- Volume
- 73
- Issue
- 2
- Pages
- 459-485
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref