Trend growth expectations and US house prices before and after the crisis
AbstractWe provide an analysis that might help distinguish rationally justified movements in house prices from potentially non-rational movements, using a two-sector business cycle model, in which investment in housing is subject to collateral constraints. A large portion of the evolution of U.S. house prices during the past 20 years can be reproduced when expectations of future income growth as published in surveys are used as an input into the model. Changes in growth expectations translate into corresponding changes in house prices, since the value of housing must be linked to expected aggregate income. Only since about 2005 do actual and model-implied house prices clearly diverge, calling for explanations not based on economic fundamentals. --
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Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 12/2012.
Date of creation: 2012
Date of revision:
House prices; trend growth; Kalman filter; real-time data; borrowing constraints;
Other versions of this item:
- Hoffmann, Mathias & Krause, Michael U. & Laubach, Thomas, 2012. "Trend growth expectations and U.S. house prices before and after the crisis," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 394-409.
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-DGE-2012-05-22 (Dynamic General Equilibrium)
- NEP-MAC-2012-05-22 (Macroeconomics)
- NEP-URE-2012-05-22 (Urban & Real Estate Economics)
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