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Housing Demand During the Boom: The Role of Expectations and Credit Constraints

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  • Tim Landvoigt

Abstract

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.

Suggested Citation

  • Tim Landvoigt, 2017. "Housing Demand During the Boom: The Role of Expectations and Credit Constraints," The Review of Financial Studies, Society for Financial Studies, vol. 30(6), pages 1865-1902.
  • Handle: RePEc:oup:rfinst:v:30:y:2017:i:6:p:1865-1902.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhx026
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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