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Understanding house-price dynamics

Author Info

Listed author(s):
  • Makoto Nakajima

Abstract

For most homeowners, housing is the single most important component of their nonpension wealth. Therefore, a change in house prices greatly affects the total wealth of many households. Furthermore, movements in house prices can affect people’s lives indirectly. For example, the surge in the number of mortgage defaults and foreclosures during the recent recession was triggered in part by a drop in house prices, and this surge damaged the health of the financial institutions that either directly or indirectly owned mortgage loans. In turn, the deteriorating health of the financial sector was one of the factors contributing to the recession. Naturally, for both policymakers and for people who want to make sound financial decisions, it is important to understand how and why house prices move. In “Understanding House-Price Dynamics,” Makoto Nakajima explains a simple theory that helps us better understand house-price dynamics. The theory — called the user cost-rent equivalence — is based on the close relationship between user costs, which are the costs of owning a house for a year, and rents.

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File URL: http://www.philadelphiafed.org/research-and-data/publications/business-review/2011/q2/brq211_understanding-house-price-dynamics.pdf
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Article provided by Federal Reserve Bank of Philadelphia in its journal Business Review.

Volume (Year): (2011)
Issue (Month): Q2 ()
Pages: 20-28

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Handle: RePEc:fip:fedpbr:y:2011:i:q2:p:20-28
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Keywords: Households - Economic aspects;

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  1. Wenli Li & Fang Yang, 2010. "American dream or American obsession? The economic benefits and costs of homeownership," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 20-30.
  2. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
  3. Mankiw, N. Gregory & Weil, David N., 1989. "The baby boom, the baby bust, and the housing market," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 235-258, May.
  4. Davis, Morris A. & Heathcote, Jonathan, 2007. "The price and quantity of residential land in the United States," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2595-2620, November.
  5. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, 03.
  6. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2009. "Accounting For Changes In The Homeownership Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 677-726, 08.
  7. Theodore M. Crone & Leonard I. Nakamura & Richard Voith, 2010. "Rents Have Been Rising, Not Falling, in the Postwar Period," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 628-642, August.
  8. Christopher J. Mayer, 2007. "Understanding recent trends in house prices and homeownership: commentary," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 125-137.
  9. Robert J. Shiller, 2007. "Understanding recent trends in house prices and homeownership," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 89-123.
  10. Monika Piazzesi & Martin Schneider, 2009. "Momentum Traders in the Housing Market: Survey Evidence and a Search Model," American Economic Review, American Economic Association, vol. 99(2), pages 406-411, May.
  11. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2007. " Winners and Losers in Housing Markets," CDMA Conference Paper Series 0705, Centre for Dynamic Macroeconomic Analysis.
  12. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1567-1606.
  13. Edward L. Glaeser & Joseph Gyourko & Raven E. Saks, 2005. "Why Have Housing Prices Gone Up?," American Economic Review, American Economic Association, vol. 95(2), pages 329-333, May.
  14. Otmar Issing, 2007. "Understanding recent trends in house prices and homeownership: general discussion," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 139-148.
  15. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2010. "Winners and Losers in House Markets," Working Papers 2010-5, Central Bank of Cyprus.
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Cited by:

  1. Beatrice D. Simo-Kengne & Rangan Gupta & Goodness C. Aye, 2013. "Macro Shocks And House Prices In South Africa," Working Papers 201302, University of Pretoria, Department of Economics.
  2. Kivedal, Bjørnar Karlsen, 2013. "Testing for rational bubbles in the US housing market," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 369-381.

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