Price expectations, distressed mortgage markets and the housing wealth effect

Yvonne McCarthy and Kieran McQuinn

No 06/RT/13, Research Technical Papers from Central Bank of Ireland

Abstract: The life-cycle theory of consumption draws a well-established distinction between the implications for consumption of changes in wealth perceived to be of a "transitory" as opposed to a "permanent" nature. In this paper, using a unique combination of regulatory and survey micro-data, we examine the importance of the life-cycle theory, in estimating housing wealth effects for the Irish mortgage market. In the aftermath of the recent financial crisis, this market has experienced substantial levels of house price declines and negative equity. Thus, house price expectations are likely to be of major importance in influencing housing wealth effects. Our results suggest that mortgaged Irish households exhibit a relatively large wealth effect out of housing when compared with other countries and, in accordance with the life-cycle theory, households' price expectations are influencial in determining the consumption repsonse to shocks.

Keywords: Consumption; House Prices; Income; Wealth (search for similar items in EconPapers)
JEL-codes: D12 E21 R30 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-mac, nep-sog and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Price Expectations, Distressed Mortgage Markets and the Housing Wealth Effect (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cbi:wpaper:06/rt/13

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