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Macroeconomic Uncertainty And The Comovement In Buying Versus Renting In The Usa

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  • Goodness C. Aye

    (Department of Economics, University of Pretoria, South Africa)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, South Africa)

Abstract

This paper characterizes the sources of the comovement in the U.S metropolitan buy-rent growth rate. The analysis is based on quarterly buy-rent indices from 1982:Q1 to 2016:Q4. To this end, we used the dynamic factor model to decompose the index into national and local factors. The national component contributed more to the variation in the buy-rent indices relative to the local component with variance decomposition values of 72% and 27% respectively albeit this varied across the cities. We further examined the sensitivity of the national buy-rent factor to macroeconomic uncertainty. Our full sample results show that uncertainty has a significant negative effect on the buy-rent behavior thus favouring buying a home as a wealth accumulation channel and hence a hedge relative to renting a similar home and investing in other financial assets. The results from the recursive estimation further confirmed a dominant negative relationship with fewer periods of positive relationship. The implications of these findings are drawn.

Suggested Citation

  • Goodness C. Aye & Rangan Gupta, 2019. "Macroeconomic Uncertainty And The Comovement In Buying Versus Renting In The Usa," International Association of Decision Sciences, Asia University, Taiwan, vol. 23(3), pages 93-121, September.
  • Handle: RePEc:ahq:wpaper:v:23:y:2019:i:3:p:93-121
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    More about this item

    Keywords

    Buy-rent choice; consumer behavior; dynamic latent factor model; development; economic uncertainty;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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