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Aug 5, 2020 · We build a model of the US economy with multiple aggregate shocks that generate fluctuations in equilibrium house prices. Through counterfactual experiments, we study the housing boom-bust around the Great Recession, with three main results. First, the main driver of movements in house prices and rents was a shift in beliefs, not a change in credit conditions. Second, the boom-bust in house ...
- Greg Kaplan, Kurt Mitman, Giovanni L. Violante
- 2020
The Housing Boom and Bust is a non-fiction book written by Thomas Sowell about the United States housing bubble and following subprime mortgage crisis. The book was initially published on April 24, 2009, by Basic Books and reissued on February 23, 2010.
- Thomas Sowell
- 2009
The role of housing rental markets and long-term mortgages in alleviating credit constraints is central to these findings. Second, our model suggests that the boom-bust in house prices explains half of the corresponding swings in non-durable expenditures and that the transmission mechanism is a wealth effect through household balance sheets.
- Greg Kaplan, Kurt Mitman, Giovanni L. Violante
- 2020
Oct 9, 2009 · Now, in The Housing Boom and Bust (Basic Books, 2009), Sowell contemplates the greatest expansion of government power in a generation, which was itself occasioned by the greatest economic crisis in a generation. Sowell shows how government policies led to a huge increase in highly risky housing loans. As he notes, the immense local variability ...
- Greg Kaplan
- Kurt Mitman
- Giovanni L. Violante
- A. Overview
- 2 lbph ð Q Þh : (8)
- E. Production
- B. Homeownership
- C. Decoupling of House Prices and Homeownership
- F. Cross-Sectional Distribution of Debt and Foreclosures
- V. Understanding Our Results
- C. Alternative Models of the Rental Market
- VII. Conclusions
University of Chicago, Institute for Fiscal Studies, and National Bureau of Economic Research
Institute for International Economic Studies, Stockholm University, Centre for Economic Policy Research, and Institute for Labor Economics
Princeton University, Center for Economic Behavior and Inequality, Centre for Economic Policy Research, Institute for Fiscal Studies, Institute for Labor Economics, and National Bureau of Economic Research We build a model of the US economy with multiple aggregate shocks that generate fluctuations in equilibrium house prices. Through coun-terfactua...
Our economy is populated by overlapping generations of households whose life cycle is divided between work and retirement. During the work-ing stage, they are subject to uninsurable idiosyncratic shocks to their ef-ficiency units of labor, which are supplied inelastically to a competitive production sector. Households can save in a noncontingent fi...
Government. The government runs a pay-as-you-go social security sys- — tem. Retirees receive social security benefits yret rssyw JretðV Þ, where r ss is a 5 replacement rate, the argument of the benefit function proxies for het-erogeneity in lifetime earnings, and V is average value of aggregate pro-ductivity (we thus abstract from aggregate uncert...
There are two production sectors in the economy: a final-good sector that produces nondurable consumption (the numeraire good of the economy) and a construction sector that produces new houses. Labor is perfectly mobile across sectors. 1. Final-Good Sector The competitive final-good sector operates a constant-returns-to-scale technology
Figure 4, which displays the model’s implication forhomeownership, shows that the benchmark model matches the dynamics in the data well. By itself, the belief shock reduces homeownership during the boom by pushing down the rent-price ratio (dashed line in fig. 4), for two reasons. First, rents are cheaper relative to prices, which moves people at t...
We have shown that a relaxation of credit conditions has a strong effect on homeownership but not on house prices. What explains this surpris-ing decoupling of house prices from homeownership dynamics follow-ing a credit shock? Households in the model choose to own rather than rent for one of three reasons: (1) in order to live in a house larger th...
In appendix G, we show that our model is consistent with two key features of the cross-sectional distribution of housing debt and distress. First, we show that the model reproduces the level and change in the share of out-standing mortgage debt owed by different parts of the household income distribution. Second, we show that the model tracks the r...
Lying at the heart of all the results in section IV are differences in the way the economy responds to changes in beliefs about future housing de-mand, versus changes in credit conditions. In sections V.A and V.B, we show how alternative modeling choices for these two shocks would affect our findings. In section V.C, we show that our findings are r...
In this section, we show that our conclusions about the role of belief shifts and credit conditions are robust to how we model the rental mar-ket. We explore four extensions: different degrees of segmentation between rental and property markets, the introduction of various frictions in the problem of the rental company, a model with fixed rents, an...
Viewed through the lens of our model, the housing boom-bust of the 2000s was caused by shifts in expectations about future house price growth. These beliefs were shared by households, investors, and lenders. In particular, the wave of optimistic beliefs during the boom induced lenders to endogenously expand cheaper credit to risky borrowers. At the...
Aug 17, 2021 · In media descriptions of the housing bubble, the poster children of the boom-bust cycle were places such as Las Vegas. And, in the economist's data, the prices of Las Vegas homes do show a massive ...
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Apr 24, 2009 · The Housing Boom and Bust. Hardcover – April 24, 2009. This is a plain-English explanation of how we got into the current economic disaster that developed out of the economics and politics of the housing boom and bust. The creative” financing of home mortgages and the even more creative” marketing of financial securities based on American ...
