Endogenous Housing Market Cycles
AbstractHousing markets tend to display both positive serial correlation as well as a considerable volatility over time. We present a stochastic model illustrating the connection between adaptive expectations and market fluctuations. All macro economic and demographic variables stay fixed over time and price movements are driven by expectations only. In the case where agents face unconstrained mortgage financing, the housing market oscillations are regular and depend on mortgage to income ratios. When credit institutions are introduced, which view houses as mortgage collaterals, the dynamics get complex. Periods of mild oscillations are mixed with violent collapses in an unpredictable manner.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 458.
Date of creation: May 2006
Date of revision:
Heterogeneous agents; adaptive expectation; credit score models; house price cycles;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-05-20 (All new papers)
- NEP-FMK-2006-05-20 (Financial Markets)
- NEP-MAC-2006-05-20 (Macroeconomics)
- NEP-URE-2006-05-20 (Urban & Real Estate Economics)
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