Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/75754
Authors: 
Rady, Sven
Ortalo-Magné, François
Year of Publication: 
2001
Series/Report no.: 
CESifo Working Paper 470
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 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.
JEL: 
E32
G12
G21
R21
Document Type: 
Working Paper

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