House Prices and the Distribution of Wealth Around the Great Recession

Cóndor Richard and Oviedo Moguel Rodolfo

No 2023-04, Working Papers from Banco de México

Abstract: This paper employs a calibrated model of the US economy to analyze the boom and bust in house prices as well as the shifts in the distribution of wealth during the years around the Great Recession. We replicate the dynamics of the housing market using shocks to aggregate income, the distribution of income, credit conditions, and expectations of future housing demand driven by irrational exuberance. We find that irrational exuberance was the primary driver behind the dynamics of house prices and that the relaxation and subsequent tightening of credit conditions are crucial to explain the behavior of mortgage debt, default rates, and housing holdings by households at the bottom of the wealth distribution. The boom in house prices led to a temporary decrease in wealth concentration, which was subsequently reversed during the bust.

Keywords: Credit Conditions; Expectations; Irrational Exuberance; Great Recession; House Prices (search for similar items in EconPapers)
JEL-codes: D31 D84 E21 E32 G01 R31 (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-dge and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:bdm:wpaper:2023-04

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