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First-time home buyers and residential investment volatility

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  • Jonas D. M. Fisher
  • Martin Gervais

Abstract

Like other macroeconomic variables, residential investment has become much less volatile since the mid-1980s (recent experience notwithstanding.) This paper explores the role of structural change in this decline. Since the early 1980s there have been many changes in the underlying structure of the economy, including those in the mortgage market which have made it easier to acquire a home. We examine how these changes affect residential investment volatility in a life-cycle model consistent with micro evidence on housing choices. We find that a decline in the rate of household formation, increased delay in marriage, and an increase in the cross-sectional variance of earnings drive the decline in volatility. Our findings provide support for the view that the ?Great Moderation? in aggregate fluctuations is not just due to smaller aggregate shocks, but is driven at least in part by structural change.

Suggested Citation

  • Jonas D. M. Fisher & Martin Gervais, 2007. "First-time home buyers and residential investment volatility," Working Paper Series WP-07-15, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-07-15
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    Cited by:

    1. Goodness C. Aye & Stephen M. Miller & Rangan Gupta & Mehmet Balcilar, 2016. "Forecasting US real private residential fixed investment using a large number of predictors," Empirical Economics, Springer, vol. 51(4), pages 1557-1580, December.
    2. repec:esx:essedp:712 is not listed on IDEAS
    3. João Miguel Ejarque & Joachim Borg Kristensen, 2013. "Rent Control and the Housing Expenditure Share," CAM Working Papers 2013-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    4. Iacoviello, Matteo & Pavan, Marina, 2013. "Housing and debt over the life cycle and over the business cycle," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 221-238.
    5. Jonathan Halket & Santhanagopalan Vasudev, 2014. "Saving Up or Settling Down: Home Ownership over the Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 345-366, April.
    6. repec:esx:essedp:717 is not listed on IDEAS
    7. Nicholas Apergis & Ghassen El Montasser & Emmanuel Owusu-Sekyere & Ahdi N. Ajmi & Rangan Gupta, 2014. "Dutch Disease Effect of Oil Rents on Agriculture Value Added in MENA Countries," Working Papers 201408, University of Pretoria, Department of Economics.
    8. repec:ipg:wpaper:2014-465 is not listed on IDEAS
    9. Yu Ren & Yufei Yuan, 2014. "Why the Housing Sector Leads the Whole Economy: The Importance of Collateral Constraints and News Shocks," The Journal of Real Estate Finance and Economics, Springer, vol. 48(2), pages 323-341, February.
    10. Marina Pavan & Matteo Iacoviello, 2008. "Household Volatility, Household Debt and the Great Moderation," 2008 Meeting Papers 903, Society for Economic Dynamics.

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    Home ownership; Mortgages;

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