Housing Wealth and Mortgage Contracts

Joseph B. Nichols ()
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Joseph B. Nichols: Economics University of Maryland

No 75, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: This paper develops a detailed partial equilibrium model of housing wealth's role over the life-cycle to explore (1) housing's dual role as a consumption and investment good; (2) the significance of the mortgage contract being in nominal and not real terms; and (3) the tax benefits associated with owner-occupied housing. The stochastic dynamic programming problem is solved using parallel processing. The baseline model is then compared with a set of alternate scenarios to explore these three key aspects of housing wealth. The results show that the ``over-investment'' in housing is not just a function of consumption demand but also can be driven by the benefits inherent in the mortgage contract. It also shows that the nominal mortgage contract results in the non-neutrality of perfectly expected inflation. Finally, the paper documents the effect of preferential tax treatment on housing demand

Keywords: housing; mortgages; life-cycle model; parallel processing; portfolio allocation (search for similar items in EconPapers)
JEL-codes: E21 G11 G21 (search for similar items in EconPapers)
Date: 2005-11-11
New Economics Papers: this item is included in nep-fin, nep-mac and nep-ure
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:75

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