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Homeowners' financial vulnerability over the house price cycle

Author

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  • Ruben Tarne

    (University of Groningen)

Abstract

This paper investigates the dynamics of financial vulnerability of indebted homeowners over the housing cycle with an agent-based housing market model. The model is calibrated using UK micro data. I find that financial vulnerability is driven by previous period house purchases and by dissaving due to a wealth effect on consumption. While the first channel is more important in the upswing, the dissaving channel is more important at high price levels. A second finding is that current vulnerability is path-dependent on past purchases at high prices, as due to the wealth effect, these past purchases lead to temporary high consumption.

Suggested Citation

  • Ruben Tarne, 2022. "Homeowners' financial vulnerability over the house price cycle," IMK Working Paper 216-2022, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:216-2022
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    File URL: http://www.boeckler.de/pdf/p_imk_wp_216_2022.pdf
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    Cited by:

    1. Ruben Tarne & Dirk Bezemer, 2023. "ousing affordability in a monetary economy: an agent-based model of the Dutch housing market," IMK Working Paper 222-2023, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Mérő, Bence & Borsos, András & Hosszú, Zsuzsanna & Oláh, Zsolt & Vágó, Nikolett, 2023. "A high-resolution, data-driven agent-based model of the housing market," Journal of Economic Dynamics and Control, Elsevier, vol. 155(C).

    More about this item

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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