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Home Equity, Mobility, and Macroeconomic Fluctuations

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  • Vincent Sterk

Abstract

How does a fall in house prices affect real activity? This paper presents a business cycle model in which a decline in house prices reduces geographical mobility, creating distortions in the labor market. This happens because homeowners face declines in their home equity levels, after which it becomes more difficult to provide the down-payment required for a new mortgage loan. Unemployed homeowners therefore turn down job offers that would require them to move. The model explains joint cyclical patterns in housing and labor market aggregates, as well as the puzzling breakdown of the U.S. Beveridge curve that occurred during 2009.

Suggested Citation

  • Vincent Sterk, 2010. "Home Equity, Mobility, and Macroeconomic Fluctuations," DNB Working Papers 265, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:265
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    References listed on IDEAS

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    More about this item

    Keywords

    Housing Markets; Labor Markets; Refinancing Constraints;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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