Abstract:This paper constitutes the first of two interrelated studies and is concerned with the relationship between house prices and transactions. Using aggregate time-series data, we find a strong relationship in Britain between the two variables, but the relationship changed during the 1990s. Transactions became much lower. We suggest that structural changes in macroeconomic relationships are increasingly likely to occur in a world of greater inequality and our results are one symptom. We argue that macroeconomic es… Show more
“…When the full price effect has been reached the impact on the hazard rates vanishes. This confirms the patterns found by Hort (2000) and Andrew and Meen (2003). The negative impact on the hazards of entry and sale are of about the same magnitude, and both hazard rates remain around half a percentage point below equilibrium for around a year for around a year.…”
supporting
confidence: 86%
“…Her main result is that a positive interest shock has an immediate negative impact on sales but affect prices negatively only with a lag. More recently, Andrew and Meen (2003) study aggregate UK data and also focus on the adjustment to fundamentals, using an error-correction framework. In the first stage, they estimate a longrun levels relation between price and fundamentals represented by income, supply, the number of households and construction costs.…”
“…This will allow us to provide more detail about the dynamics of the housing market adjustment process than in earlier studies. Like Hort (2000) and Andrew and Meen (2003) we focus on the transmission of news about fundamentals to house prices and transaction volumes. But unlike these and other earlier studies we are able to say whether variations in the number of houses sold is due to variations in the number of houses entered onto the market (the hazard of entry) or on the conditional probability of sale.…”
“…When the full price effect has been reached the impact on the hazard rates vanishes. This confirms the patterns found by Hort (2000) and Andrew and Meen (2003). The negative impact on the hazards of entry and sale are of about the same magnitude, and both hazard rates remain around half a percentage point below equilibrium for around a year for around a year.…”
supporting
confidence: 86%
“…Her main result is that a positive interest shock has an immediate negative impact on sales but affect prices negatively only with a lag. More recently, Andrew and Meen (2003) study aggregate UK data and also focus on the adjustment to fundamentals, using an error-correction framework. In the first stage, they estimate a longrun levels relation between price and fundamentals represented by income, supply, the number of households and construction costs.…”
“…This will allow us to provide more detail about the dynamics of the housing market adjustment process than in earlier studies. Like Hort (2000) and Andrew and Meen (2003) we focus on the transmission of news about fundamentals to house prices and transaction volumes. But unlike these and other earlier studies we are able to say whether variations in the number of houses sold is due to variations in the number of houses entered onto the market (the hazard of entry) or on the conditional probability of sale.…”
“…19 There is indeed considerable evidence that modest rates of new construction hardly affect existing home prices (Meen, 2000;Andrew and Meen, 2003) 20 Indeed, if existing home prices are sticky and do not fully reflect future expectations, high levels of…”
Section: Theory Of New Local Housing Supplymentioning
The results suggest that both higher prices for existing homes and recent increases in development costs are positively associated with local single-family home permit rates. Instead, higher levels of development costs turn out to dampen construction activity. The average local price elasticity of new single-family home supply is considerably less than one, with surprising differences across the urban hierarchy.
“…11 The procyclicality of housing transaction volumes has been previously documented in Stein (1995) for US data and Andrew and Meen (2003) for the UK economy. Stein (1995) proposes that downpayment effects can explain this patter.…”
This paper presents a theory in which expansionary monetary policy causes a rise in leverage. Low mortgage rates encourage buyers to enter the housing market, raising the housing sales rate. Because lenders can resell seized foreclosure inventory at lower cost in such a hot housing market, ex-ante they feel comfortable financing a larger fraction of the house purchase. Consistent with this mechanism, this study documents empirically that the housing sales rate is highly sensitive to monetary policy. Calibrating a New Keynesian macroeconomic model augmented with credit-constrained consumers and with housing market search frictions, this housing liquidity channel of monetary policy contributes substantially to the effect of monetary policy on credit markets and the real economy. More generally, this framework suggests that measures to stimulate housing liquidity, including monetary policy alternatives such as home buyer tax credits, are key to stimulating access to credit.
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