Housing Wealth Isn't Wealth
Abstract
A fall in house prices due to a change in fundamental value redistributes wealth from those long housing (for whom the fundamental value of the house they own exceeds the present discounted value of their planned future consumption of housing services) to those short housing. In a representative agent model and in the Yaari-Blanchard OLG model used in the paper, there is no pure wealth effect on consumption from a change in house prices if this represents a change in fundamental value. There is a pure wealth effect on consumption from a change in house prices if this reflects a change in the speculative bubble component of house prices. Two other channels through which house prices can affect aggregate consumption are (1) redistribution effects if the marginal propensity to spend out of wealth differs between those long housing and those short housing and (2) collateral or credit effects due to the collateralisability of housing wealth and the non-collateralisability of human wealth. A decline in house prices reduces the scope for mortgage equity withdrawal. For given sequences of future after-tax labour income and interest rates, this may depress consumption in the short run while boosting it in the long run.Download Info
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14204.Length:
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:nbr:nberwo:14204
Note: IFM ME
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Keywords:Other versions of this item:
- Buiter, Willem H., 2010. "Housing wealth isn't wealth," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4(22), pages 1-29.
- Buiter, Willem H., 2009. "Housing wealth isn't wealth," Economics Discussion Papers 2009-56, Kiel Institute for the World Economy.
- Buiter, Willem H, 2008. "Housing Wealth isn't Wealth," CEPR Discussion Papers 6920, C.E.P.R. Discussion Papers.
- E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-06 (All new papers)
- NEP-DGE-2008-08-06 (Dynamic General Equilibrium)
- NEP-MAC-2008-08-06 (Macroeconomics)
- NEP-URE-2008-08-06 (Urban & Real Estate Economics)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Charles Calomiris & Stanley D. Longhofer & William Miles, 2009. "The (Mythical?) Housing Wealth Effect," NBER Working Papers 15075, National Bureau of Economic Research, Inc.
- Guglielmo Maria Caporale & Ricardo M. Sousa, 2011.
"Consumption, Wealth, Stock and Housing Returns: Evidence from Emerging Markets,"
NIPE Working Papers
32/2011, NIPE - Universidade do Minho.
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- Casey B. Mulligan, 2008. "A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance," NBER Working Papers 14514, National Bureau of Economic Research, Inc.
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