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Housing market dynamics: on the contribution of income shocks and credit constraints

Ortalo-Magné, François and Randy, Sven (2001) Housing market dynamics: on the contribution of income shocks and credit constraints. Discussion paper (375). Financial Markets Group, London School of Economics and Political Science, London, UK. (Submitted)

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This paper presents a dynamic theory of housing market fluctuations. It develops a life-cycle model where households are heterogeneous with respect to income and preferences, and mortgage lending is restricted by a down-payment requirement. the market interaction of young credit-constrained households with order or richer unconstrained households generates the following results. (1) Current income of young credit-constrained households affects housing prices independently of aggregate income. (2) Housing prices and the number of housing transactions are positively correlated. (3) Housing prices over-react to income shocks. (4) A relaxation of the down-payment constraint triggers a boom-but cycle. These results are consistent with patterns observed in the US and the UK.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2001 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Date Deposited: 28 Aug 2009 11:31
Last Modified: 03 Feb 2021 00:22

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