A Repayment Model of House Prices

Jakob Madsen

No 09-11, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: This paper proposes a model in which house prices are determined by housing affordability in the short run, while being determined by acquisition costs in the long run. Housing affordability is, in turn, determined by nominal income and nominal mortgage payments. The model explains the recent housing market run-up in the OECD countries by lower housing repayments, decreasing nominal interest rates, and a large inflow of migrants. Empirical estimates give strong support for the model and suggest that it explains house prices in the OECD better than the mainstream models.

Keywords: house prices; institutions; affordability; financial innovations; Tobin’s q. (search for similar items in EconPapers)
JEL-codes: E13 E22 G12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-ure
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Citations: View citations in EconPapers (3)

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