Price expectations, distressed mortgage markets and the housing wealth effect
AbstractThe life-cycle theory of consumption draws a well-established distinction between the implications for consumption of changes in wealth perceived to be of a "transitory" as opposed to a "permanent" nature. In this paper, using a unique combination of regulatory and survey micro-data, we examine the importance of the life-cycle theory, in estimating housing wealth effects for the Irish mortgage market. In the aftermath of the recent financial crisis, this market has experienced substantial levels of house price declines and negative equity. Thus, house price expectations are likely to be of major importance in influencing housing wealth effects. Our results suggest that mortgaged Irish households exhibit a relatively large wealth effect out of housing when compared with other countries and, in accordance with the life-cycle theory, households' price expectations are influencial in determining the consumption repsonse to shocks.
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Bibliographic InfoPaper provided by Central Bank of Ireland in its series Research Technical Papers with number 06/RT/13.
Date of creation: Aug 2013
Date of revision:
Consumption; House Prices; Income; Wealth;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-15 (All new papers)
- NEP-MAC-2014-02-15 (Macroeconomics)
- NEP-SOG-2014-02-15 (Sociology of Economics)
- NEP-URE-2014-02-15 (Urban & Real Estate Economics)
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