Decline In House Prices Research Articles

공공임대주택 유형별 가격효과 분석 : 서울시 장기전세 및 국민임대주택을 중심으로

Due to the stereotypes that Public Rental Housing could affect negatively in housing prices, local residents often oppose the construction of public rental housing. Meanwhile, the government has recently diversified the types of public rental housing, such as SHIFT(Long-term rental housing) and National rental housing, to embrace the demands of single-person households, young people and newlyweds. In this situation, we have focused on the possibility that public rental housing may have different effects on nearby housing prices depending on the types and characteristics of public rental housing. To analyze the effect of public rental housing supply, we choose the case study sites through serial processes, and applied the Modified Repeat Sales Model with the concept of Difference-In-Difference method. The results show that the supply of public rental housing affects housing price decline and the magnitude of this effect varies by the type of public rental housing.

Will Population Ageing Cause a House Price Meltdown in Australia?

The life cycle hypothesis suggests that when the Baby Boomers retire, many are likely to sell their assets to finance their retirement, exerting downward pressure on house prices. This paper examines whether demographic transitions, particularly the increasing proportion of the population in the old age cohort due to the retirement of Baby Boomers, will precipitate a dramatic decline in real house prices in Australia. The study uses a structural vector autoregressive framework. This is an important improvement over the reduced-form regression strategies usually employed in the literature. Both the demographic and non-demographic variables used in the empirical analysis are treated as endogenous and reverse causality between the variables is taken into account. The population ageing dynamics are modelled using impulse response functions and, thus, an insight into the potential magnitude of demographic shocks, particularly retirement shocks, is obtained. A much longer time series from 1950 to 2014 is used in the empirical analysis. The findings reject the predictions that population ageing, or more specifically, changes in age structure particularly due to retiring Baby Boomers, will lead to pronounced downward pressure on real house price in Australia. The results suggest that macroeconomic shocks and house price specific shocks explain more of the variation in house prices than the shifts in the population age structure, suggesting that such factors could outweigh any effects of future demographic shifts on house prices. At present the principal residence is excluded in the means test calculation for the age pension. The rapidly increasing size of the retired population will impose an increasing fiscal burden due to age pension expenditure. The way in which housing is treated for age pension eligibility will affect choices on whether older households remain in current residence or face pressure on selling their houses to finance the retirement consumption. This will have an impact on releasing housing stock into the market, which is an important policy implication from this research.

Regional heterogeneity in age-related housing depreciation rates

This paper analyses the regional variation of age-related depreciation rates for housing: firstly, using observations of single-family house prices, our analysis estimates housing market-specific age-cohort depreciation rates, while taking into account the heterogeneity in attributes, location, and state of maintenance. Secondly, we examine whether the derived depreciation rates correlate with determinants of the regional supply- and demand-side. Considering the durability of the housing stock and substitution effects in housing demand, we find that a rise in excess supply will not only lead to declining house prices in the aggregate, but also to a widening of relative house price differentials among houses at different ages.

Negative home equity reduces household mobility: Evidence from administrative data

We investigate the impact of negative home equity on household residential mobility. We employ a unique administrative panel data set covering nearly the whole population of Dutch homeowners. The data contains a large set of personal characteristics of more than 2,000,000 homeowners. We identify the effect of negative home equity on mobility by exploiting the quasi-exogenous regional variation of the unanticipated housing market shock during 2008–2012, in which real house prices declined by 25%. Households plunging into negative home equity due to unanticipated declining house prices are 21% less likely to move compared to households upholding positive home equity.

Consumption and credit constraints: a model and evidence from Ireland

After the onset of the financial crisis, consumption fell in many economies. This paper presents a small-scale DSGE model with occasionally binding credit constraints. Indebted households start facing credit constraints when the value of their main asset, housing, declines. As a response, they stop smoothing consumption and start deleveraging. Even households that only expect to face a credit constraint in the future deleverage. Using the Irish Household Budget Survey, we show that most Irish households continued to smooth consumption during the crisis. However, for highly indebted consumption smoothing is disrupted during the crisis. Households with leverage close to but below the standard loan-to-value ratio of 85% also seem to smooth consumption less than normal households. This is rational if they expect a further house price decline and therefore anticipate the need to deleverage in the near future. We interpret these results as evidence of credit constraints that arise from falling property prices.

What Happened: Financial Factors in the Great Recession

At the onset of the recent global financial crisis, the workhorse macroeconomic models assumed frictionless financial markets. These frameworks were thus not able to anticipate the crisis, nor to analyze how the disruption of credit markets changed what initially appeared like a mild downturn into the Great Recession. Since that time, an explosion of both theoretical and empirical research has investigated how the financial crisis emerged and how it was transmitted to the real sector. The goal of this paper is to describe what we have learned from this new research and how it can be used to understand what happened during the Great Recession. In the process, we also present some new empirical work. We argue that a complete description of the Great Recession must take account of the financial distress facing both households and banks and, as the crisis unfolded, nonfinancial firms as well. Exploiting both panel data and time series methods, we analyze the contribution of the house price decline, versus the banking distress indicator, to the overall decline in employment during the Great Recession. We confirm a common finding in the literature that the household balance sheet channel is important for regional variation in employment. However, we also find that the disruption in banking was central to the overall employment contraction.

Current account dynamics and the housing cycle in Spain

We investigate the negative correlation between housing markets and the current account in a monetary union, using the Spanish economy as an illustrative example. By employing robust sign restrictions, which we derive from a DSGE model for a currency union, we analyze the effects of Spanish pull and Eurozone push factors in a mixed-frequency VAR framework. Savings glut, risk premium, and housing bubble shocks are capable of generating the negative co-movement of housing markets and the current account in the data. In contrast—and counterfactual to the housing boom—financial easing shocks in Spain predict a decline in both residential investment and house prices.

What contributes to the rising house prices in Beijing? A decomposition approach

The average real house price in Beijing rose by roughly 41.8% between 2012 and 2015, and the appreciation differs across low- versus high-priced homes. The rising house price might be caused by changes in the characteristics of housing units, and it might also be induced by the changing returns to housing characteristics in the underlying hedonic price functions. In this paper, we use a comprehensive housing transaction dataset and analyze the changes in the distribution of house prices over time through a decomposition approach. The result of Oaxaca-Blinder mean decomposition suggests that the proportion of the price gap between 2012 and 2015 due to altered returns over time is greater than the proportion caused by changes in housing characteristics. The quantile decomposition shows that the decomposition effects are heterogenous across the complete distribution of house prices. We also find that low-priced homeowners are exposed to a decline in house prices, while there are deteriorating housing conditions from 2012 to 2015. The high-priced homeowners experience an improvement in living conditions, but a rise in house prices.

Global capital markets, housing prices, and partisan fiscal policies

In recent years, global imbalances have channeled the excess savings of surplus countries toward the real estate markets of deficit countries. By consequence, the deficit countries that attracted lots of foreign capital experienced large run‐ups in house prices, whereas most surplus countries that exported capital exhibited flat or slow house price growth. We first use new house price data and a novel instrumental variable design to show the causal relationship between housing prices and capital inflows, particularly through debt bonanzas. We then argue that international capital flows affect the fiscal policy preferences of both voters and political parties by way of their impact on housing prices. Where capital inflows are large and housing prices are rising, we expect voters to respond by demanding both lower taxes and less publicly‐provided social insurance because rising house prices allow homeowners to self‐insure against income loss. In contrast, declining house prices produce greater demands for social insurance, particularly among those most exposed to housing market risk. We present evidence from two cross‐national surveys that supports these claims, as well as a “before and after” analysis of the housing crash in Eastern Europe. We also show that the connection between house prices and social policy also manifests itself in government spending outcomes, mediated by partisan control.

Constructing an index to examine house price misalignment with fundamentals in Malta

PurposeThe purpose of this paper is to compute an aggregate misalignment index using a multiple indicator approach to identify under- or over-valuation of house prices in Malta based on fundamentals.Design/methodology/approachA total of six indicators are used that capture households, investors and system-wide factors: the house price-to-Retail Price Index ratio, the price-to-hypothetical borrowing volume ratio, price-to-construction costs ratio, price-to-rent ratio, dwelling investment-to-GDP ratio and the loan bearing capacity. The weights are derived using principal component analysis. The analysis is performed using both the house price indices of the National Statistics Office (NSO) and the Central Bank of Malta (CBM), which are based on contract and advertised prices, respectively.FindingsHouse prices in Malta were overvalued by around 20 to 25 per cent in the pre-crisis boom. This disequilibrium started to be corrected following the decline in house prices, with the CBM and NSO house price cycles reaching a trough in 2013 and 2014, respectively. At the trough, house prices were undervalued by around 10 to 15 per cent. Since then, house prices started to recover although the recovery in advertised prices was more pronounced compared to that based on contract prices. In mid-2017, advertised house prices were slightly overvalued, while contract prices still have to reach their equilibrium level. The dynamics from the misalignment index, including its peaks and troughs, are remarkably similar to the range derived from statistical filters.Practical implicationsEstimates of house price misalignment have both economic and financial stability implications.Originality/valueThis paper allows for a decomposition of the house price cycle, tailored for the particular characteristics of the Maltese housing market. It also takes into account the relationship between house prices and private sector rents, which in recent years have been buoyed, among other factors, by the high inflow of foreign workers and changing patterns in the tourism industry.

Introduction

The rate of home-ownership across Europe and in many countries has increased significantly in recent decades. This is partly because most governments have promoted home-ownership as part of an asset-based welfare system with the notion that home-ownership will generate wealth for households through the accumulation of housing equity. Changes in house prices play an important role in the generation of the housing equity and the wealth inherent in home-ownership. In general, house prices change in cycles of upward and downward trends. Each of these cycles may be driven by different sets of fundamental determinants and by the prevailing conditions in the wider economy. Over the long term, home-owners usually accumulate significant housing equity, yielding welfare benefits. However, even periods of brief house price decline can erode the value of housing equity accrued over several years. Following the 2007-08 Global Financial Crisis (GFC), for example, the severe decline in house prices caused many recent home-owners to run into negative equity. Figures from Statistics Netherlands show that following the GFC, in the Netherlands alone the total wealth in residential properties declined from e738,449 million in 2009 to e721,018 million by the end of 2012. In effect, home-ownership involves significant financial risk, which can adversely affect the balance sheets of households. These risks require a better understanding and proper measurements. However, it is also important to first understand house price dynamics, which significantly affect the process of equity generation. A thorough understanding of house price dynamics is necessary if we are to identify innovative ways of insuring against the risks associated with home-ownership.

Home-value insurance and idiosyncratic risks of residential property prices

The recent Global Financial Crisis has reawakened home-owners to the need for protecting their home-equities from possible future house price decline. This paper re-examines the Shiller and Weiss (1999) home-value insurance scheme and proposes a modification that eliminates a large proportion of the idiosyncratic sale price risks of residential properties. Using data between 1995 and 2014 for Amsterdam, the proposed insurance policy shows a higher pay-out efficiency, a higher loss coverage and a greater pay-out probability than the original Shiller and Weiss (1999) scheme. The new home-value insurance policy thus provides better protection for the property sale price risks.

Household Financial Distress and Voter Participation

I examine the effect of house price declines on voter participation using a novel person-level panel dataset. Contrary to what the “angry voter hypothesis” predicts, I find that a ten percent decline in local house prices decreases the participation rate of the average mortgaged homeowner by 1.6 percentage points. Consistent with a financial distress channel, house price declines have no effects on renters and particularly severe effects on highly leveraged households. My findings are consistent with the existence of a feedback loop between financial distress and inequality operating through voter participation.

Too poor to retire? Housing prices and retirement

The near-retirement households among all working-age groups in the United States experienced larger drops in consumption and greater increases in labor force participation during the financial crisis of 2007–2009. Also, the retirement probability for near-retirement homeowners (but not for renters) decreases more in those areas where housing prices also decline more. This paper argues that the wealth effect of housing prices on retirement can account for those issues. It creates an incomplete-market life-cycle partial-equilibrium model with risky housing assets and endogenous retirement and verifies that the joint response of retirement and non-durable consumption implied by the structural model is consistent with the empirical findings using data from the Health and Retirement Study 1992–2012. It then shows that, after an unexpected 28 percent housing price decline, near-retirement homeowners ages 55–64 will reduce their non-durable consumption by 4.6 percent and increase their labor force participation by 1 percentage point immediately and delay their retirement by 2.8 months in the long run. The model also quantifies endogenous retirement as self-insurance for elderly homeowners against housing price risk.

Residential land values in the Washington, DC metro area: New insights from big data

We use a new property-level data set and an innovative methodology to estimate the price of land from 2000 to 2013 for nearly the universe of detached single-family homes in the Washington, DC metro area and to characterize the boom-bust cycle in land and house prices at a fine geography. The results show that land prices were more volatile than house prices everywhere, but especially so in the areas where land was inexpensive in 2000. We demonstrate that the change in the land share of house value during the boom was a significant predictor of the decline in house prices during the bust, highlighting the value of focusing on land in assessing house-price risk.

Metro Area Common House Price Declines and US Recessions

We investigate the relation between large negative house price co-movements in the cross-section of US cities and the national business cycle. The occurrences of large negative house price co-movements across cities cluster over time and these clusters are closely linked to NBER recession dates. A simple co-movement measure that aggregates large negative city-level house price returns reliably predicts future recession periods. Weighting cities according to population or GDP when constructing the negative co-movement variable yields the largest forecasting power, indicating that larger cities that contribute more to the national GDP are more influential in terms of correctly signaling future recessions. Moreover, large negative house price co-movements contribute above and beyond traditional recession predictors, suggesting an important role for city-level housing information as an early warning indicator.

Rockets: The housing market effects of a credible terrorist threat

This paper explores the economic costs of conflict using a unique experiment. We analyze the effects of Hezbollah’s massive surprise rocket attack against northern Israel during the 2006 Second Lebanon War and the continued threat posed by the organization’s expanding rocket arsenal on the housing market, the labor market and patterns of migration flows and sorting. Relying on hedonic and repeat sales approaches and using a difference-in-differences identification strategy for 2000–2012, we show that the attack led to a 6–7% decline in house prices and rents in the most severely hit localities relative to other localities in northern Israel. These effects persisted until 2012, suggesting that the public continued to view the rocket threat as credible. In contrast, we find practically no effect on labor market conditions, migration flows and sorting.

House Prices, Geographical Mobility, and Unemployment

Geographical mobility correlates positively with house prices and negatively with unemployment over the U.S. business cycle. I present a DSGE model in which declining house prices and tight credit conditions impede the mobility of indebted workers. This reduces the workers' cross-area competition for jobs, causing wages and unemployment to rise. A Bayesian estimation shows that this channel more than quadruples the response of unemployment to adverse housing market shocks. The estimation also shows that adverse housing market shocks caused the decline in mobility during the Great Recession. Absent this decline, the unemployment rate would have been 0.5 p.p. lower.

Redistribution of Local Labor Market Shocks through Firms' Internal Networks

Local labor market shocks are difficult to insure against. Using confidential micro data from the U.S. Census Bureau’s Longitudinal Business Database, we document that firms redistribute the employment impacts of local demand shocks across regions through their internal networks of establishments. During the Great Recession, the massive decline in house prices caused a sharp drop in consumer demand, leading to large employment losses in the non-tradable sector. Consistent with firms smoothing out the impacts of these shocks across regions, we find large elasticities of non-tradable establishment-level employment with respect to house prices in other counties in which the firm has establishments. At the same time, establishments of firms with larger regional networks exhibit lower employment elasticities with respect to local house prices in the establishment’s own county. To account for general equilibrium adjustments, we aggregate non-tradable employment at the county level. Similar to what we found at the establishment level, we find that non-tradable county-level employment responds strongly to local demand shocks in other counties linked through firms’ internal networks. These results are not driven by direct demand spillovers from nearby counties, common shocks to house prices, or local demand shocks affecting non-tradable employment in distant counties indirectly via the trade channel. Our results suggest that firms play an important role in the extent to which local labor market risks are shared across regions.

From Wall Street to Main Street: The Impact of the Financial Crisis on Consumer Credit Supply

This paper studies how the collapse of the asset backed securities (ABS) market during the financial crisis of 2007-2009 affected the supply of credit to the broader economy using a new dataset that describes unique interbank relationships within the credit union industry. This industry is important for consumer finance, and we find that ABS related losses at correspondent credit unions are associated with a large contraction in the supply of consumer credit and a hoarding of cash among downstream credit unions. We also find that this contraction in credit supply was concentrated among downstream credit unions that began the crisis with lower capital asset ratios, and that it may have amplified the initial decline in house prices. These results suggest that capital regulation might shape the ability of financial institutions to transmit securities price volatility onto the real economy.