Boom In, Bust Out: Young Households and the Housing Price Cycle

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Boom In, Bust Out: Young Households and the Housing Price Cycle

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Sven Rady

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Abstract

The UK experienced a major residential real estate boom-bust cycle from the mid-Eighties to the mid-Nineties, accompanied by unprecedented shifts in the owner occupancy rate of young households. Previous empirical analyses have pointed toward income changes and financial deregulation as the likely causes of this episode, with little to say about the differential effects on various age groups. We show that, in a life-cycle model with income heterogeneity and credit constraints, the observed co-movements of housing prices and owner occupancy rates can be explained as an equilibrium response to income and credit market shocks. Our findings suggest that the financial liberalisation of the early Eighties was crucial for the unparalleled increase in the owner occupancy rate of young households during the boom.

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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp310.

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Date of creation: Nov 1998
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Handle: RePEc:fmg:fmgdps:dp310

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Article
- Ortalo-Magne, Francois & Rady, Sven, 1999. "Boom in, bust out: Young households and the housing price cycle," European Economic Review, Elsevier, vol. 43(4-6), pages 755-766, April. [Downloadable!] (restricted)
Paper
- Francois Ortalo-Magne & Sven Rady, 1998. "Boom In, Bust Out: Young Households and the Housing Price Cycle," Finance 9810004, EconWPA, revised 25 Oct 1998. [Downloadable!]

Cited by:
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Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions," NBER Working Papers 11643, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing high house prices: bubbles, fundamentals, and misperceptions," Staff Reports 218, Federal Reserve Bank of New York. [Downloadable!]
- Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall. [Downloadable!] (restricted)
Balázs Egert & Dubravko Mihaljek, 2007. "Determinants of House Prices in Central and Eastern Europe," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
Other versions:
- Balazs Egert & Dubravko Mihaljek, 2007. "Determinants of House Prices in Central and Eastern Europe," William Davidson Institute Working Papers Series wp894, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
- Balázs Égert & Dubravko Mihaljek, 2007. "Determinants of house prices in central and eastern Europe," BIS Working Papers 236, Bank for International Settlements. [Downloadable!]
Matteo Iacoviello & Raoul Minetti, 2002. "The Credit Channel of Monetary Policy: Evidence from the Housing Market," Boston College Working Papers in Economics 541, Boston College Department of Economics, revised 29 Aug 2003. [Downloadable!]
François Ortalo-Magné & Sven Rady, 2005. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraint," Discussion Papers 50, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
Other versions:
- Ortalo-Magné, François & Rady, Sven, 2001. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," CEPR Discussion Papers 3015, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- François Ortalo-Magné & Sven Rady, 2002. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," Wisconsin-Madison CULER working papers 02-01, University of Wisconsin Center for Urban Land Economic Research. [Downloadable!]
- Francois Ortalo-Magne & Sven Rady, 2001. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
- Rady, Sven & Ortalo-Magné, François, 2001. "Housing Market Dynamics," Discussion Papers in Economics 20, University of Munich, Department of Economics. [Downloadable!]
- Sven Rady, 2001. "Housing Market Dynamics: on the Contribution of Income Shocks and Credit Constraints," FMG Discussion Papers dp375, Financial Markets Group. [Downloadable!] (restricted)
- FRANÇOIS ORTALO-MAGNÉ & SVEN RADY, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," Review of Economic Studies, Blackwell Publishing, vol. 73(2), pages 459-485, 04. [Downloadable!] (restricted)
Christophe Blot, 2006. "Peut-on parler de bulle sur le marché immobilier au Luxembourg ?," BCL working papers cahier_etude_20, Central Bank of Luxembourg. [Downloadable!]
Maria Concetta Chiuri & Tullio Jappelli, 2006. "Do the elderly reduce housing equity? An international comparison," CSEF Working Papers 158, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
Fracois Ortalo-Magne & Sven Rady, 2000. "Why are Housing Prices so Volatile? Income Shocks in a Stochastic Heterogeneous-Agents Model," Econometric Society World Congress 2000 Contributed Papers 1352, Econometric Society. [Downloadable!]
Salá Rios, Mercè, 2004. "Análisis territorial de la accesibilidad a la vivienda en España," Estudios de Economía Aplicada, Revista Estudios de Economía Aplicada, vol. 22, pages 1-21, Diciembre. [Downloadable!] (restricted)
Antonia Diaz & Maria J. Luengo-Prado, 2006. "On The User Cost And Homeownership," Economics Working Papers we065421, Universidad Carlos III, Departamento de Economía. [Downloadable!]
Other versions:
- Antonia Díaz & Maria J. Luengo-Prado, 2006. "On The User Cost and Homeownership," Working Papers 2006-14, FEDEA. [Downloadable!]
- Antonia Diaz & Maria Jose Luengo Prado, 2008. "On the User Cost and Homeownership," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 584-613, July. [Downloadable!] (restricted)
Andrew Benito, . "How does the down-payment constraint affect the UK housing market?," Bank of England working papers 294, Bank of England. [Downloadable!]
Catarina Figueira & John Glen & Joseph Nellis, 2005. "A Dynamic Analysis of Mortgage Arrears in the UK Housing Market," Urban/Regional 0509006, EconWPA. [Downloadable!]
Laura Berger-Thomson & Luci Ellis, 2004. "Housing Construction Cycles and Interest Rates," RBA Research Discussion Papers rdp2004-08, Reserve Bank of Australia. [Downloadable!]
Dag Einar Sommervoll, 2007. "Counterintuitive response to tax incentives? Mortgage interest deductions and the demand for debt," Discussion Papers 492, Research Department of Statistics Norway. [Downloadable!]
Charles Ka Yui Leung & Dandan Feng, 2004. "Testing Alternative Theories of Property Price-Trading Volume with Commercial Real Estate Market Data," Discussion Papers 00003, Chinese University of Hong Kong, Department of Economics. [Downloadable!]
Other versions:
- Charles Ka-yui Leung & Dandan Feng, 2004. "Testing Alternative Theories of Property Price-Trading Volume with Commercial Real Estate Market Data," Departmental Working Papers _159, Chinese University of Hong Kong, Department of Economics.
Ortalo-Magné, François & Rady, Sven, 2005. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints (Revised Version)," Discussion Papers in Economics 494, University of Munich, Department of Economics. [Downloadable!]
J. Swank & J. Kakes & A.F. Tieman, 2002. "The Housing Ladder, Taxation, and Borrowing constraints," WO Research Memoranda (discontinued) 688, Netherlands Central Bank, Research Department. [Downloadable!]
Other versions:
- Job Swank & Jan Kakes & Alexander F. Tieman, 2002. "The housing ladder, taxation, and borrowing constraints," MEB Series (discontinued) 2002-9, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
Rady, Sven & Ortalo-Magné, François, 2002. "Homeownership," Discussion Papers in Economics 28, University of Munich, Department of Economics. [Downloadable!]
Other versions:
- Sven Rady, 2002. "Homeownership: Low household mobility, volatile housing prices, high income dispersion," FMG Discussion Papers dp432, Financial Markets Group. [Downloadable!] (restricted)
- Francois Ortalo-Magne & Sven Rady, 2002. "Homeownership: Low Household Mobility, Volatile Housing Prices, High Income Dispersion," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]

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