Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192600 
Year of Publication: 
2010
Series/Report no.: 
Discussion Papers No. 618
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
The house price level is a function of buyers' realized home equity, and buyers' realized home equity is a function of the house price level. This interdependence follows from the fact that buyers are sellers in the same market. This article examines under what conditions this leads to a possible upward-sloping demand curve with a potentially unstable equilibrium. I employ a parsimonious model with two kinds of buyers, and utilize an augmented Slusky-equation that decomposes Walrasian demand into a substitution, an income, and an endowment income effect. The model demonstrates that instability may occur if first-time buyers' demand is sufficiently inelastic, leverage is stretched, debt-financing is common, and nth-time buyers are relatively more frequent than first-time buyers. Regulation on leverage and a capital gains tax reduce the likelihood of upward-sloping demand. The article utilizes new data from Norway to examine an empirical indicator of an equity accelerator of house prices and finds that over the period 2000-2008 the value of all housing transactions exceeded the aggregate net growth of mortgages by 50%, indicating substantial equity financing. In one year, 2008, the value of aggregate housing transactions was double the growth in net mortgages.
Subjects: 
capital gains
consumer behavior
endowment income
feedback system
financial acceleration
home equity
housing
instability
interdependence
JEL: 
D03
D10
D53
E21
E44
G12
R21
R31
Document Type: 
Working Paper

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