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Rational housing demand bubble

Abstract : We provide a unified framework with demand for housing over the life cycle and financial frictions to analyze the existence and macroeconomic effects of rational housing bubbles. We distinguish a housing price bubble, defined as the difference between the housing market price and its fundamental value, from a housing demand bubble, which corresponds to a situation where a pure speculative housing demand exists. In an overlapping generation exchange economy, we show that no housing price bubble occurs. However, a housing demand bubble may occur, generating a boom in housing prices and a drop in the interest rate, when households face a binding borrowing constraint. Multiplicity of steady states and endogenous fluctuations can occur when credit market imperfections are moderate. These fluctuations involve transitions between equilibria with and without a housing demand bubble that generate large fluctuations in housing prices consistent with observed patterns. We finally extend the basic framework to a production economy and we show that a housing demand bubble increases the housing price, housing price to income ratio and economic growth.
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Preprints, Working Papers, ...
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Contributor : Elisabeth Lhuillier Connect in order to contact the contributor
Submitted on : Thursday, June 23, 2022 - 5:08:36 PM
Last modification on : Saturday, June 25, 2022 - 3:47:35 AM


WP 2022 - Nr 13.pdf
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  • HAL Id : hal-03703219, version 1



Lise Clain-Chamosset-Yvrard, Xavier Raurich, Thomas Seegmuller. Rational housing demand bubble. 2022. ⟨hal-03703219⟩



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