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A Repayment Model of House Prices

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  • Jakob B Madsen

Abstract

This paper proposes a model in which house prices are determined by housing affordability in the short run, while being determined by acquisition costs in the long run. Housing affordability is, in turn, determined by nominal income and nominal mortgage payments. The model explains the recent housing market run-up in the OECD countries by lower housing repayments, decreasing nominal interest rates, and a large inflow of migrants. Empirical estimates give strong support for the model and suggest that it explains house prices in the OECD better than the mainstream models.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2011/0911repaymentmodelmadsen.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 09-11.

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Length: 32 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:mos:moswps:2011-09

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Keywords: house prices; institutions; affordability; financial innovations; Tobin’s q.;

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References

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Cited by:
  1. André K. Anundsen & Eilev S. Jansen, 2013. "Self-reinforcing effects between housing prices and credit: an extended version," Discussion Papers 756, Research Department of Statistics Norway.
  2. Madsen, Jakob B., 2012. "A behavioral model of house prices," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 21-38.

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