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. 5 Boulevard Maurice Bourdet CS 50498 F-13205 Marseille cedex 1, France

No 2207, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

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-fulfilling fluctuations (search for similar items in EconPapers)
JEL-codes: E32 E44 R21 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac and nep-ure
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https://www.gate.cnrs.fr/RePEc/2022/2207.pdf (application/pdf)

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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