Abstract not found

We estimate a structural model of optimal life-cycle housing and nonhousing con-sumption in the presence of labor income and house price uncertainties. The model postulates constant elasticity of substitution between housing service and nonhousing consumption, and explicitly incorporates a housing adjustment cost. Our estimation ts the cross-sectional and time-series household wealth and housing proles from the Panel Study of Income Dynamics (1984 to 2005) reasonably well, and suggests an intra-temporal elasticity of substitution between housing and nonhousing consumption of 0.487. The low elasticity estimate is largely driven by moments conditional on state house prices and moments in the later half of the sample period and is robust to differ-ent assumptions of housing adjustment cost. We then conduct policy analyses where we let house price and income take values as those observed between 2006 and 2011. We show that the responses depend importantly on the housing adjustment cost and the elasticity of substitution between housing and nonhousing consumption. In particular, compared to the benchmark, the impact of the shocks on homeownership rates is reduced but the impact on nonhousing consumption is magnied when house selling cost is large or when housing service and nonhousing consumption are highly substitutable.

We present a framework for studying the relation between the distributions of income and house prices that is based on an assignment model where households are heterogeneous by incomes and houses by quality. Each household owns one house and wishes to live in one house; thus everyone is potentially both a buyer and a seller. In equilibrium, the distribution of prices depends on both distributions in a tractable but nontrivial manner. We show how the impact of increased income inequality on house prices depends on the shapes of the distributions, and can be inferred from data. In our empirical application we …nd that increased income inequality between 1998 and 2007 had a negative impact on average house prices in

Optimism about future house price appreciation and loose credit constraints are commonly considered as having been the main drivers of the recent housing boom. This paper examines the role these two forces played in shaping household behavior during the boom by inferring short-run expectations of future house price growth and minimum down payment requirements from observed household choices. The expectations and credit constraints are implied by a lifecycle portfolio choice model that encompasses home ownership, housing demand, and financing choices. I structurally estimate the parameters of this model using data from the Survey of Consumer Finances from 1995 to 2007. The main result is that both aggregate expectations of future price growth and down payment requirements were declining throughout the boom. The falling expectations moderate the otherwise counterfactually strong rise in house values predicted by the model. Laxer credit constraints partly offset the effect of the drop in expecations and lead to the slight increases in loan-to-value ratios and the home ownership rate that we observe in the data for this time period. The lower expectations at the end of the boom could be interpreted as evidence for aggregate beliefs in mean-reverting house prices. timl@stanford.edu. I am grateful to my adviser Martin Schneider for his guidance, and to Monika Piazzesi for

This paper uses an assignment model to understand the cross section of house prices within a metro area. Movers ’ demand for housing is derived from a lifecycle problem with credit market frictions. Equilibrium house prices adjust to assign houses that differ by quality to movers who differ by age, income and wealth. To quantify the model, we measure distributions of house prices, house qualities and mover characteristics from micro data on San Diego County during the 2000s boom. The main result is that cheaper credit for poor households was a major driver of prices, especially at the low end of the market.

In this paper, we construct a life cycle model with housing demand and incomplete market to explore the relationship between housing demand, accompanied with underdeveloped housing finance, and the household saving rate in China. We investigate two types of finance imperfection: a) the high down payment ratio required by central bank, and b) the unsmooth home equity withdrawal due to the prohibitive nature of refinancing. Without access to home equity withdrawal, households have to hold a considerable amount of non-housing asset such as deposit, cash, and bond as it is difficult for them to insure against negative income shocks and retirement via housing asset. This helps to account for the rising household saving rate during the past 10 years in China where commercialized housing market had been emerging. Yet interestingly on another note, we find higher down payment ratio leads to a substitution between housing and non-housing assets, leaving the aggregate household saving rate almost unchanged.

When will durable expenditures respond strongly to economic stimulus? We build from micro evidence and show that in a heterogeneous agent business cycle model with …xed costs of durable adjustment, responsiveness is substantially dampened during recessions. Our model estimates imply that during the Great Recession, durable expenditures were half as responsive to additional stimulus as during the boom in the 1990s. This procyclical responsiveness is driven by changes in the distribution of households’desired durable holdings over the cycle. We directly test our model by estimating this distribution empirically using PSID micro data and …nd that the distribution in the data moves cyclically as predicted. In addition to this micro evidence, we also provide support for our model’s procyclical responsiveness using aggregate time-series data, and we show this time-series evidence is inconsistent with simpler models featuring smooth adjustment costs.

In this paper, we investigate to what extent shocks in housing and …nancial mar-kets account for wage and employment variations in a frictional labor market. To explain these interactions, we use a model of job search with accumulation of wealth as liquid funds and residential real estate, in which house prices are randomly persistent. First, we show that reservation wages and unemployment are increasing in total wealth. And, second, we show that reservation wages and unemployment are also responsive to the composition of wealth. Speci-cally, when house prices are expected to rise, holding a larger share of wealth as residential real estate tends to increase reservation wages, which deteriorates employment transitions and increases unemployment. We estimate our model structurally using National Longitudinal Survey of Youth data from 1978 to 2005, and we …nd that more relaxed house …nancing conditions, in particular lower down payment requirements, decrease employment rates by 5 percentage points in the short run and by 2 percentage points in the long run. We also …nd that worse labor market conditions immediately increase homeownership rates by up to 5 percent points, whereas in the long run homeownership decreases by 8 percentage points.

and the 2011 Jerusalem Conference. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at

The conventional wisdom that house prices are the present value of future rents ignores the fact that rents are not discretionary as in dividends on stocks. Housing price uncertainty can affect household property investment, which in turn affects rent. By extending the theory of investment under uncertainty, we model the renter’s decision to buy a house and the landlord’s decision to sell as real options of waiting and examine real options effects on rent. Using unique data from Hong Kong, we find significant a causal effect of house prices on rents and draw important policy implications.