Open AccessHousing Demand During the Boom: The Role of Expectations and Credit Constraints
Author(s) -
Tim Landvoigt
Publication year - 2017
Publication title -
review of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 12.8
H-Index - 190
eISSN - 1465-7368
pISSN - 0893-9454
DOI - 10.1093/rfs/hhx026
Subject(s) - boom , economics , leverage (statistics) , home equity , equity (law) , debt , bust , house price , household debt , monetary economics , macroeconomics , finance , machine learning , computer science , law , political science , engineering , environmental engineering
I use a life-cycle model of housing demand to infer expectations about house prices and home equity requirements for the housing boom of the 2000s from observed household choices. Expectations and credit constraints are separately identified from the intensive and extensive margins of housing demand. The main results are that (1) expected price growth was close to average long-run growth, (2) home equity requirements were lax initially, but tightened after the bust, and (3) subjective uncertainty about future price growth was large. Given the option to default on mortgage debt, greater price uncertainty leads to higher optimal household leverage.
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