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A behavioral model of house prices

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  • Madsen, Jakob B.

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.

Suggested Citation

  • Madsen, Jakob B., 2012. "A behavioral model of house prices," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 21-38.
    • Handle: RePEc:eee:jeborg:v:82:y:2012:i:1:p:21-38
    DOI: 10.1016/j.jebo.2011.12.010
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    3. Nannan Yuan & Shigeyuki Hamori, 2014. "Are government interventions effective in regulating China fs house prices?," Discussion Papers 1427, Graduate School of Economics, Kobe University.
    4. Bahmani-Oskooee, Mohsen & Ghodsi, Seyed Hesam, 2018. "Asymmetric causality between the U.S. housing market and its stock market: Evidence from state level data," The Journal of Economic Asymmetries, Elsevier, vol. 18(C), pages 1-1.
    5. Theodore Panagiotidis & Panagiotis Printzis, 2016. "On the macroeconomic determinants of the housing market in Greece: a VECM approach," International Economics and Economic Policy, Springer, vol. 13(3), pages 387-409, July.
    6. Nannan Yuan & Shigeyuki Hamori & Wang Chen, 2014. "House Prices and Stock Prices: Evidence from a Dynamic Heterogeneous Panel in China," Discussion Papers 1428, Graduate School of Economics, Kobe University.
    7. Singh, Bhupal, 2023. "Housing prices and macroprudential policies: Evidence from microdata," Economic Systems, Elsevier, vol. 47(1).
    8. van der Drift, Rosa & de Haan, Jan & Boelhouwer, Peter, 2023. "Mortgage credit and house prices: The housing market equilibrium revisited," Economic Modelling, Elsevier, vol. 120(C).
    9. Jakob B. MADSEN & James B. ANG, 2014. "Finance-Led Growth in the OECD since the 19th century: How Does Financial Development Transmit To Growth?," Economic Growth Centre Working Paper Series 1408, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    10. repec:eee:joecas:v:18:y:2018:i:c:p:- is not listed on IDEAS
    11. Mohsen Bahmani-Oskooee & Hesam Ghodsi & Muris Hadzic, 2021. "On the Link between House Prices and House Permits: Asymmetric Evidence from 51 States of the United States of America," International Real Estate Review, Global Social Science Institute, vol. 24(3), pages 323-361.
    12. Tripathi, Sabyasachi, 2019. "Macroeconomic Determinants of Housing Prices: A Cross Country Level Analysis," MPRA Paper 98089, University Library of Munich, Germany.
    13. An-Pin Wei & Wei-Ling Huang & Chih-Yuan Yang & Ming-Chi Chen, 2013. "The role of market imperfections in the relationship between housing prices and household credit: Evidence from Taiwan," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 27(2), pages 131-143, November.
    14. Mohsen Bahmani-Oskooee & Seyed Hesam Ghodsi, 2019. "On the Link between Value of the Dollar and Housing Production in the U.S.: Evidence from State Level Data," International Real Estate Review, Global Social Science Institute, vol. 22(2), pages 231-274.
    15. Bahmani-Oskooee, Mohsen & Wu, Tsung-Pao, 2018. "Housing prices and real effective exchange rates in 18 OECD countries: A bootstrap multivariate panel Granger causality," Economic Analysis and Policy, Elsevier, vol. 60(C), pages 119-126.
    16. Karpestam, Peter & Johansson, Sebastian, 2019. "Interest-only-mortgages and housing market fluctuations in Denmark," Journal of Housing Economics, Elsevier, vol. 46(C).
    17. Meijers, Huub & Muysken, Joan, 2022. "The macroeconomic implications of financialisation on the wealth distribution," MERIT Working Papers 2022-035, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    18. Apergis, Nicholas & Hayat, Tasawar & Kadasah, Nasser A., 2019. "Subjective well-being in housing purchasing: Evidence with survey data from the U.K. housing residential market," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 328-335.
    19. Damen, Sven & Vastmans, Frank & Buyst, Erik, 2016. "The effect of mortgage interest deduction and mortgage characteristics on house prices," Journal of Housing Economics, Elsevier, vol. 34(C), pages 15-29.

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    More about this item

    Keywords

    Behavior of house prices; Institutions; Affordability; Financial innovations; Tobin's q;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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