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Precaution and Liquidity in the Demand for Housing

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  • Balvers, Ronald J
  • Szerb, Laszlo

Abstract

We exploit cross-sectional mortgage data to investigate the importance of liquidity constraints and a precautionary motive in the demand for housing. Households that are not liquidity constrained consume housing services essentially as the life cycle hypothesis suggests but with a significant precautionary component. Households that are liquidity constrained, in terms of not meeting standard loan-to-value or payments-to-income constraints, are similar to unconstrained households in most respects, including the precautionary motive, but they respond somewhat less to fluctuations in their lifetime income--suggesting some influence of bank-induced liquidity constraints. We additionally find, however, that banks enforce liquidity constraints only weakly. Copyright 2000 by Oxford University Press.

Suggested Citation

  • Balvers, Ronald J & Szerb, Laszlo, 2000. "Precaution and Liquidity in the Demand for Housing," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 289-303, April.
    • Handle: RePEc:oup:ecinqu:v:38:y:2000:i:2:p:289-303
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    Cited by:

    1. Joseph Nichols, 2004. "A Life-cycle Model with Housing, Portfolio Allocation, and Mortgage Financing," Econometric Society 2004 North American Winter Meetings 205, Econometric Society.
    2. Taufiq Choudhry, 2020. "Economic Policy Uncertainty and House Prices: Evidence from Geographical Regions of England and Wales," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(2), pages 504-529, June.
    3. Taufiq Choudhry, 2010. "Does Interest Rate Volatility Affect The Us Demand For Housing? Evidence From The Autoregressive Distributed Lag Method," Manchester School, University of Manchester, vol. 78(4), pages 326-344, July.
    4. Michael L. Gross, 2003. "Fighting by Other Means in the Mideast: a Critical Analysis of Israel's Assassination Policy," Political Studies, Political Studies Association, vol. 51(2), pages 350-368, June.

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