Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints

By Sven Rady, F. Ortalo-Magné. Social Science Research Network, 2001

780 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/2d89be324966b26232bc5289111b8ecfc37a1f82

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Citations in the corpus

Modelling the demand for housing over the life cycle (2012, methodology): “This is done as described in Tauchen (1986). We preferred Tauchen’s method of equally spaced nodes over the quadrature based method proposed by Tauchen and Hussey (1991), because this has been shown to be more robust to very high persistence in the modelled processes (see (Floden, 2007)).”
Fundamental factors in the housing markets of China (2014, background): “…how demand shifters, such as demographics, income, and credit market, affect the appreciation of real estate prices (e.g., Mankiw and Weil, 1989; Ortalo-Magne and Rady, 2006; Ferreira and Gyourko, 2011).2 Since 2000, several major Chinese cities have experienced unprecedented growth in the…”
HOUSE PRICES, SALES, AND TIME ON THE MARKET: A SEARCH-THEORETIC FRAMEWORK (2013, positive): “For instance, Merlo and Ortalo-Magné (2004) provide evidence for the UK that, by listing lower prices, sellers increase the number of visits and offers they get, and sell their property faster.”
A Dynamic Model of Housing Demand: Estimation and Policy Implications (2010, background): “Ortalo-Magne and Rady (2006) study the interaction of financial markets conditions and home ownership rates in a structural model of housing choices.”
The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk Sharing in General Equilibrium (2017, neutral): “…the general equilibrium exchange economy analyses that embed bond, stock, and housing markets of Lustig and Van Nieuwerburgh (2006, 2010) and Ríos-Rull and Sánchez-Marcos (2008) and the partial equilibrium analyses of Peterson (2002), Ortalo-Magné and Rady (2006), and Corbae and Quintin (2010).”
Hot and cold seasons in the housing market (2014, neutral): “E [" " j " > "] = R "s (1 F s (")) d" 1 F s ("s) : (21)”
Housing Liquidity, Mobility, and the Labour Market (2012, methodology): “Using life-cycle a model, Ortalo-Magne and Rady (2006) nd important e¤ects of nancial constraints.”