Rational housing demand bubble

Lise Clain-Chamosset-Yvrard, Xavier Raurich and Thomas Seegmuller ()
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Thomas Seegmuller: Aix-Marseille Univ., CNRS, AMSE, Marseille France., https://www.amse-aixmarseille.fr/en/members/seegmuller

No 2213, AMSE Working Papers from Aix-Marseille School of Economics, France

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.

Keywords: Bubble; Housing; Self-ful lling uctuations (search for similar items in EconPapers)
JEL-codes: E32 E44 R21 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2022-06
New Economics Papers: this item is included in nep-dem, nep-dge, nep-mac and nep-ure
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Related works:
Journal Article: Rational housing demand bubble (2024)
Working Paper: Rational housing demand bubble (2024)
Working Paper: Rational housing demand bubble (2022)
Working Paper: Rational housing demand bubble (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:2213

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