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A Repayment Model of House Prices

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  • Jakob B Madsen

Abstract

This paper proposes a model in which house prices are determined by housing affordability in the short run, while being determined by acquisition costs in the long run. Housing affordability is, in turn, determined by nominal income and nominal mortgage payments. The model explains the recent housing market run-up in the OECD countries by lower housing repayments, decreasing nominal interest rates, and a large inflow of migrants. Empirical estimates give strong support for the model and suggest that it explains house prices in the OECD better than the mainstream models.

Suggested Citation

  • Jakob B Madsen, 2011. "A Repayment Model of House Prices," Monash Economics Working Papers 09-11, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2011-09
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2011/0911repaymentmodelmadsen.pdf
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    References listed on IDEAS

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    Cited by:

    1. Madsen, Jakob B., 2012. "A behavioral model of house prices," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 21-38.
    2. Khiabani, Nasser, 2015. "Oil inflows and housing market fluctuations in an oil-exporting country: Evidence from Iran," Journal of Housing Economics, Elsevier, vol. 30(C), pages 59-76.
    3. André K. Anundsen & Eilev S. Jansen, 2013. "Self-reinforcing effects between housing prices and credit: an extended version," Discussion Papers 756, Statistics Norway, Research Department.

    More about this item

    Keywords

    house prices; institutions; affordability; financial innovations; Tobin’s q.;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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