Endogenous housing market cycles
Working paper
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http://hdl.handle.net/11250/180709Utgivelsesdato
2006Metadata
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- Discussion Papers [1002]
Sammendrag
Abstract:
Housing markets tend to display both positive serial correlation as well as a considerable volatility
over time. We present a stochastic model illustrating the connection between adaptive expectations
and market fluctuations. All macro economic and demographic variables stay fixed over time and
price movements are driven by expectations only. In the case where agents face unconstrained
mortgage financing, the housing market oscillations are regular and depend on mortgage to income
ratios. When credit institutions are introduced, which view houses as mortgage collaterals, the
dynamics get complex. Periods of mild oscillations are mixed with violent collapses in an
unpredictable manner.
Keywords: Heterogeneous agents, adaptive expectation, credit score models, house price cycles