A behavioral model of house prices

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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.
Original languageEnglish
Pages (from-to)21 - 38
Number of pages18
JournalJournal of Economic Behavior and Organization
Volume82
Issue number1
DOIs
Publication statusPublished - 2012

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