The relationship between house prices and house purchase loans: The Spanish case

This paper looks at recent developments in house purchase loans and house prices in Spain and the linkages between them. It aims at identifying deviations of these variables from their equilibrium levels, and for this purpose, we estimate a vector error-correction model. The results show that both variables are interdependent in the long-run and that both variables were above their equilibrium level by the end of the sample period (2009:Q1). The paper also offers insight into how overvaluation (overindebtedness) in house prices can lead to a false sense of no overindebtedness (house prices overvaluation).     

The equilibrium effect of fundamentals on house prices and rents

Using a dynamic equilibrium model of housing tenure choice with fully specified markets for homeownership and rental properties, and endogenous house prices and rents, this paper studies the effect of fundamentals on equilibrium house prices and rents. Lower interest rates, relaxed lending standards, and higher incomes are shown to account for approximately one-half of the increase in the U.S. house price–rent ratio between 1995 and 2006, and to generate the pattern of rapidly growing house prices, sluggish rents, increasing homeownership, and rising household indebtedness observed in the data.     

A Cross-Section Analysis of the Income Elasticity of Housing Demand in Spain: Is There a Real Estate Bubble?

Much attention has been given to claims that real estate prices in Spain are overvalued in relation to income and how plummeting house prices can jeopardize the economy (The Economist, 2003 and IMF, 2004). The measure of income elasticity on housing expenditure is often of considerable interest to applied researchers and policy makers in real estate economics, but the problem of omitted variables in some estimation techniques can lead to severe biases. In this paper we estimate the income elasticity of the demand for housing in Spain based on the cross-section of prices and income in fifty Spanish provinces from 1996 to 2002. In comparison to long-run equilibrium models fitted with time-series data, our results show a much weaker role of income growth as a vehicle for house price increases in the long run. According to our estimates, the rate of growth of house prices in Spain between 1998 and 2003 points to a real estate bubble with prices above the long-term equilibrium level.     

What Drives the Owner‐Occupied and Rental Housing Markets? Evidence from an Estimated DSGE Model

Most dynamic stochastic general equilibrium (DSGE) models with a housing market do not explicitly include a rental market and assume a tight mapping between house prices and rents over the business cycle. However, rents are much smoother than house prices in the data. We match this feature of the data by adding both an owner‐occupied housing market and a rental market in a standard DSGE model. The intertemporal preference shock accounts for more than half of the variation in house prices and contributes to residential investment fluctuations through the liquidity constraint, and nominal rigidity in rental contracts captures the variation in the price‐rent ratio.     

House Prices and Government Spending Shocks

We show that dynamic stochastic general equilibrium (DSGE) models with housing and collateralized borrowing predict a fall in house prices following positive government spending shocks. By contrast, we show that house prices in the United States rise persistently after identified positive government spending shocks. We clarify that the incorrect house price response is due to a general property of DSGE models—approximately constant shadow value of housing—and that modifying preferences and production structure cannot help in obtaining the correct house price response. Properly accounting for the empirical evidence on government spending shocks and house prices using a DSGE model therefore remains a significant challenge.     

The Housing Market in the United Kingdom: Effects of House Price Volatility on Households

This paper describes the economics of the housing market and explains why house prices are likely to be more volatile than prices in other markets. It illustrates the volatility of house prices relative to some other key economic variables in the UK. The paper then considers the implications of variability in house prices for household behaviour, surveying a number of studies for the UK and elsewhere on the effects of house price volatility on consumption spending, indebtedness, labour supply, and entry to and exit from the homeownership market.     

低利率推高房价：来自中国、美国和日本的证据

本文利用中、关、日三国的经验说明低利率是房价快速上涨的重要原因。在收入增加和城市化加速的背景下,房价较快上升有合理成分,但是名义利率偏低且调整滞后,通货膨胀率上涨且波动很大,导致真实利率偏低,催生投资性购房需求,是房价上升的重要推力。美国次贷危机和日本房地产泡沫的经验,清晰表明了低利率是推高房价的首要因素,而且房地产泡沫的破灭对宏观经济破坏作用巨大。房地产市场的调控,应该针对投资性购房需求。     

Wall Street’s bailout bet: Market reactions to house price releases in the presence of bailout expectations

The rise and subsequent collapse of US house prices was one of the factors underlying the recent financial crisis. One could expect that the crisis brought increased attention to the housing market and thus led to stronger market reactions to house price news. We find that reactions indeed change, but with a peculiar twist: from September 2008 on, good news from the housing market are associated with falling US stock prices, and vice versa. The likely explanation, for which we provide cross-sectional evidence, is that falling house prices increased the market’s trust in a government bailout, thereby increasing market valuations of firms that were expected to benefit from government rescue measures.     

The Effect of Housing on Portfolio Choice

We show that characterizing the effects of housing on portfolios requires distinguishing between the effects of home equity and mortgage debt. We isolate exogenous variation in home equity and mortgages by using differences across housing markets in house prices and housing supply elasticities as instruments. Increases in property value (holding home equity constant) reduce stockholdings, while increases in home equity wealth (holding property value constant) raise stockholdings. The stock share of liquid wealth would rise by 1 percentage point—6% of the mean stock share—if a household were to spend 10% less on its house, holding fixed wealth.     

House prices, consumption, and monetary policy: a financial accelerator approach

We consider a general equilibrium model with frictions in credit markets used by households. In our economy, houses provide housing services to consumers and serve as collateral to lower borrowing cost. We show that this amplifies and propagates the effect of monetary policy shocks on housing investment, house prices and consumption. We also consider the effect of a structural change in credit markets that lowers the transaction costs of additional borrowing against housing equity. We show that such a change would increase the effect of monetary policy shocks on consumption, but would decrease the effect on house prices and housing investment.     

The role of house prices in the monetary policy transmission mechanism in small open economies

We analyse the role of house prices in the monetary policy transmission mechanism in Norway, Sweden and the UK, using structural VARs. A solution is proposed to the endogeneity problem of identifying shocks to interest rates and house prices by using a combination of short-run and long-run (neutrality) restrictions. By allowing the interest rate and house prices to react simultaneously to news, we find the role of house prices in the monetary transmission mechanism to increase considerably. In particular, house prices react immediately and strongly to a monetary policy shock. Furthermore, the fall in house prices enhances the negative response in output and consumer price inflation that has traditionally been found in the conventional literature. Moreover, we find that the interest rate responds systematically to a change in house prices. However, the strength and timing of response varies between the countries, suggesting that housing may play a different role in the monetary policy setting.     

International house prices and macroeconomic fluctuations

The paper investigates linkages between general macroeconomic conditions and the housing market for the G-7 area. Among the key results of the paper, we find that the US are an important source of global fluctuations not only for real activity, nominal variables and stock prices, but also for real housing prices. Secondly, albeit distinct driving forces for real activity and financial factors can be pointed out, sizeable global interactions are also evident. In particular, global supply-side shocks are an important determinant of G-7 house prices fluctuations. The linkage between real housing prices and macroeconomic developments is however bidirectional, with investment showing in general a stronger reaction than consumption and output to housing price shocks. Implications for the real effects of the sub-prime crisis are also explored.     

The relationship between rents and prices of owner-occupied housing in Taiwan

This article analyzes the changes of equilibrium rent and equilibrium price of owner-occupied housing in Taiwan, and also computes the rent multiplier and its trend in the past ten years in Taiwan to show how the housing consumption and housing investment change. A hedonic rent equation and a hedonic housing price equation are built first. Then, we apply the Housing Survey Report data from 1979 to 1989, and employ ordinary-least squares method to estimate the two equations. Using estimated coefficients of the two equations, we compute the market rents for owner-occupied housing and the market prices for rental housing. Finally, the rent multipliers are calculated from the market rents and market prices. The article finds that (1) changes of housing prices in Taipei lead to price changes in Kaoshung, and the latter leads Taiwan province; (2) changes of rent are much smaller than the changes of housing price; and (3) housing prices in Taiwan increased drastically. We also find: (1) at the peak of the housing market cycle, the rent multiplier is extremely high; (2) the rent multiplier drops in the year after the peak year because the rent catches up; (3) the rent multiplier in Taipei is greater than that of Kaoshung, and the multiplier in Kaoshung is greater than that of Taiwan province; and (4) overall, the rent multiplier in Taiwan is much greater than that of the United States.     

Housing markets and the financial crisis of 2007–2009: Lessons for the future

An unsustainable weakening of credit standards induced a US mortgage lending and housing bubble, whose consumption impact was amplified by innovations altering the collateral role of housing. In countries with more stable credit standards, any overshooting of construction and house prices owed more to traditional housing supply and demand factors. Housing collateral effects on consumption also varied, depending on the liquidity of housing wealth. Lessons for the future include recognizing the importance of financial innovation, regulation, housing policies, and global financial imbalances for fueling credit, construction, house price and consumption cycles that vary across countries.     

House Prices, Fundamentals and Bubbles

Abstract:  This paper studies actual (real) house prices relative to fundamental (real) house values. Such a focus is warranted since housing constitutes a large fraction of most household portfolios, and its characteristics are such that, in contrast to what prevails in financial markets, arbitrage will be limited and hence correction toward 'true' value is likely to be a prolonged process. Using UK data and a time-varying present value approach, our results preclude the existence of an explosive rational bubble due to non-fundamental factors. We further find that intrinsic bubbles have an important role to play in determining actual house prices although price dynamics appear to impact, particularly in periods of strong deviation from fundamental value. Price dynamics are found to be driven by momentum behaviour.     

The Dependency of Rent-to-Price Ratio on Appreciation Expectations: An Empirical Approach

Using two unique datasets from different neighborhoods in Houston, TX, which provide us data for houses with similar structure (or even same house), we test the standard model of housing values to determine how the formation of households’ expectations regarding price appreciations affects housing market prices. Using these datasets we are able to address previously encountered problems in the literature such as the lack of adjustment for quality differences, the connection between prices and rents for the different type of housing, and the spatial distribution of housing. We test whether consumer behavior leads to potentially unstable market conditions with price bubbles. Our results suggest that appreciation expectations are based on past price appreciation but at the same time they depend on the fundamental factors such as, locational and structural. These findings show a hybrid consumer behavior of rational and adaptive expectations. Finally, we show how these expectations could sometimes lead to unstable price levels.     

房价波动、金融稳定与最优宏观审慎政策

本文通过构建包含家庭住房抵押借款摩擦和银行贷款摩擦的动态随机一般均衡模型,重点考察了异质性冲击下房价波动对金融稳定的影响。研究发现,房价上涨会导致银行风险溢价及杠杆率显著上升,进而加剧金融体系的内在不稳定。为降低房价波动及维护金融稳定,选取两类宏观审慎政策工具进行逆周期调控实验,结果表明,在住房需求冲击下,金融管理部门应选取贷款价值比政策,且应对房贷积极调控,而对房价进行中性调控。在最终产品部门生产率冲击、房地产部门生产率冲击及跨期偏好冲击下,应选取资本充足率政策,但对房贷和房价调控力度的把握则存在差异。本研究为厘清房价波动对金融稳定的动态传导机制,以及金融管理部门如何选取宏观审慎政策工具以稳定房价并降低系统性金融风险提供了启示。     

House Prices and Bubbles in New Zealand

This paper studies actual (real) house prices relative to fundamental (real) house values in New Zealand for the period 1970–2005. Utilizing a dynamic present value model, we find disparities between actual and fundamental house prices in the early 1970s and 1980s and from 2000 to date. We model the bubble component that is related to fundamentals (the intrinsic component), making it possible to highlight whether a bubble still exists after that component is accounted for. We then analyze any remaining bubble to detect any momentum behavior. Much of the overvaluation of the housing market is found to be due to price dynamics rather than an overreaction to fundamentals.

International house price cycles,monetary policy and credit

We evaluate three alternative predictors of house price corrections: anticipated tightenings of monetary policy, deviations of house prices from fundamentals, and rapid credit growth. A new cross-country measure of monetary policy expectations based on an international term structure model with time-varying risk premiums is constructed. House price overvaluation is estimated via an asset pricing model. The variables are incorporated into a panel logit regression model that estimates the likelihood of a large house price correction in 18 OECD countries. The results show that corrections are predicted by increases in the market’s forecast of higher policy rates. The estimated degree of house price overvaluation also contains significant information about subsequent price reversals. In contrast to the financial crisis literature, credit growth is less important. All of these variables help forecast recessions.     

Vacancies and Rent Dispersion in a Stochastic Search Model with Generalized Tenant Demand

I model imperfect information, derive a downward sloping market demand curve, and explain vacancies in a partial equilibrium model of a rental housing market. Tenants can be completely described by an exogenous demand curve, perhaps arising from differences in income, preferred location, or tastes, and view vacant units based on a stochastic arrival of rental information. Free entry of these landlords induces excess rental housing capacity (equilibrium vacancies). I determine the equilibrium distribution of rents for vacant units, show that this rent distribution may be discontinuous, and explore the equilibrium vacancy rate to changes in exogenous parameters. The resulting characterization of equilibrium distributions of rents may be amenable to econometric modeling exploring the relationship between market rents and vacancies.