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Buying a Home with a Resale Value: Location, Location, Location *
Author(s) -
Haavio Markus,
Kauppi Heikki
Publication year - 2013
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12033
Subject(s) - consumption (sociology) , sorting , investment (military) , economics , metropolitan area , value (mathematics) , permanent income hypothesis , investment goods , microeconomics , econometrics , monetary economics , production (economics) , geography , mathematics , market liquidity , statistics , social science , archaeology , sociology , politics , political science , law , algorithm
We develop a dynamic multiregion model, where a household's choice of housing location depends on its current wealth and its current type, and involves both consumption and investment considerations. The relative strength of the consumption motive and the investment motive determines the equilibrium pattern of residential sorting. A strong investment (consumption) motive implies sorting according to household type (wealth). The model predicts that large house‐price fluctuations are associated with a low degree of sorting by type. This prediction is consistent with evidence from US metropolitan areas when income, education, and age are used as proxies for household type.