Rational housing demand bubble

Lise Clain‐chamosset‐yvrard (), Xavier Raurich and Thomas Seegmuller ()
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Lise Clain‐chamosset‐yvrard: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique
Thomas Seegmuller: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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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. The 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 housing prices, which can still be characterized by large fluctuations.

Keywords: Bubble; Housing; Self-fulfilling fluctuations (search for similar items in EconPapers)
Date: 2024
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04120338v1
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Citations: View citations in EconPapers (3)

Published in Economic Theory, 2024, 77 (3), pp.699-746. ⟨10.1007/s00199-023-01501-4⟩

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Related works:
Journal Article: Rational housing demand bubble (2024)
Working Paper: Rational housing demand bubble (2022)
Working Paper: Rational housing demand bubble (2022)
Working Paper: Rational housing demand bubble (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-04120338

DOI: 10.1007/s00199-023-01501-4

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