Disequilibrium in Housing Models

Fair, Ray C.

doi:10.2307/2978470

Cited by 14 publications

(15 citation statements)

References 2 publications

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“…It seems, however, that for modelling house prices the structural approach -based on demand and supply equations -is preferred in the literature. For an overview of early studies, see Fair (1972). Other early studies modelling housing market include Alberts (1962), Kearl (1979) and Poterba (1984).…”

Section: Selected Literature On Modelling House Pricesmentioning

confidence: 99%

An alternative method for identifying booms and busts in the Euro area housing market

2014

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThe main aim of this paper is to apply a method based on fundamentals ─ which has already been applied in the stock market analysis ─ to detect boom/bust in the housing market, with a focus on the euro area. In this context, an underlying model is developed and tested. It turns out that the user cost rate, a demographic variable, the unemployment rate, disposable income (or disposable income per capita), the debt-to-income ratio and, finally, the housing stock are fundamental variables which significantly explain house price developments. Booms and busts are then selected as episodes when the house price index deviates excessively from the levels which would be implied by these economic fundamentals. In addition, a cross-check of the boom/bust episodes based on this method and other statistical and fundamental ones is carried out in order to substantiate the results obtained. Finally, money and credit aggregates are included in the specifications and are found to be useful in explaining boom/busts cycles in house prices. Keywords: house prices, booms, busts, quantile regressions, monetary and credit aggregates JEL-classification: E37, E44, E511 Non-technical summaryDuring the past decades, asset markets have played an increasingly important role in many economies, and large swings in asset prices have become a relevant issue for policy-makers, thus bringing new attention to the linkages between monetary policy and asset markets. Monetary policy has been cited as both a possible cause of asset price booms and a tool for defusing those booms before they can cause macroeconomic instability. Consequently, economists and policymakers have focused on how monetary policy might cause an asset price boom or turn a boom caused by real phenomena, such as an increase in aggregate productivity growth, into a "bubble", which may burst unexpectedly, thus rendering damage to the economy.The novelty of this study lies in the application of the methodology used in Machado and Sousa (2006) to house prices developments, by means of selecting underlying fundamental variables and applying the quantile regression approach to detect booms and busts. Our main results are as follows.First, house price developments are significantly explained by the user cost rate (with a negative coefficient), a demographic variable (working population or labour force) which affects the house prices positively, the unemployment rate (with a negative...

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Section: Selected Literature On Modelling House Pricesmentioning

confidence: 99%

An alternative method for identifying booms and busts in the Euro area housing market

2014

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“…As early as 1972, Fair drew attention to the significance of the long-run equilibrium between house prices and incomes. This equilibrium, as he states, stems directly from the premises of general price theory, which proposes that the demand for an object is a function of income and the price of the object or service in relation to other prices (Fair 1972). However, the demanded quality is not a constant, but is influenced by changes according to the economic growth.…”

Section: Introductionmentioning

confidence: 99%

House Price, House Quality and Economic Growth

Vries

Boelhouwer²

2010

Proceedings of the 17th Annual European Real Estate Society Conference - Milan, Italy

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Abstract:The literature on housing markets suggest that periods of economic growth are characterised by a demand for better housing quality and increasing prices. The basic principles of the theory are that the short-run price fluctuations occur due to market imperfection, while over the long term, causality with such fundamentals as income will recover. Affordability of the higher quality then becomes a problem in the subsequent period of economic stagnation. This article seeks to identify the mechanism in which quality and affordability are weighed against each other, showing that the price-quality relationship changes with the economic growth. We do this against the background of the Dutch housing market. Our analysis shows that in a high-growth economy households search for better quality of property and are prepared to pay for it. In a stagnant economy the demand for quality takes second place to the demand for affordable homes. It also appears that appreciation of quality varies in particular between the low-growth phase and the medium-growth phase. The price-quality relationship barely varies between the medium-growth and high-growth phases.

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“…As early as 1972, Fair drew attention to the significance of the longrun equilibrium between house prices and incomes. This equilibrium, as he states, stems directly from the premises of general price theory, which proposes that the demand for an object is a function of income and the price of the object or service in relation to other prices (Fair 1972). …”

Section: Introductionmentioning

confidence: 99%

Equilibrium between interest payments and income in the housing market

Vries

Boelhouwer

2008

J Hous and the Built Environ

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The literature on housing markets suggests that house prices in almost all western economies can be explained by short-run demand-oriented variables and a longrun term. The basic principles of the theory are that the short-run fluctuations, which are based on recent price developments (shocks), occur due to market imperfection, while over the long term, causality with such fundamentals as income will recover. Nonetheless, many of the interesting questions in housing economics concern adjustments toward equilibrium. This paper seeks to identify a long-run equilibrium between interest payments and household income (interest-to-income ratio) instead of between house prices and income (price-to-income ratio).

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Disequilibrium in Housing Models

Cited by 14 publications

References 2 publications

An alternative method for identifying booms and busts in the Euro area housing market

An alternative method for identifying booms and busts in the Euro area housing market

House Price, House Quality and Economic Growth

Equilibrium between interest payments and income in the housing market

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