A behavioral model of house prices

Jakob Madsen

Journal of Economic Behavior & Organization, 2012, vol. 82, issue 1, 21-38

Abstract: This paper proposes a model in which house prices are determined by economy-wide nominal income and nominal mortgage payments in the short run, while being determined by acquisition costs in the long run. The model, to a large extent, explains the 1995–2007 housing market run-up in the OECD countries by lower mortgage repayments, decreasing nominal interest rates, and increasing nominal GDP, partly induced by 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 alternative models.

Keywords: Behavior of 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)
Date: 2012
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:82:y:2012:i:1:p:21-38

DOI: 10.1016/j.jebo.2011.12.010

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