House price dynamics: The role of tax policy and demography (original) (raw)

The Measurement and Determinants of Single-Family House Prices

Real Estate Economics, 1991

We assess the conceptual and empirical features of a number of house price series for the United States. We then calculate a measure of the net upgrading of the existing stock of houses that took place during the 1950-1989 period and adjust price indexes for this net increase in quality. Judgments about the trend, volatility, and determinants of house prices are shown to depend crucially on which price series is used. The Freddie Mac upgradeadjusted house price measure rose 5.7% over the past four decades, falling 7.7% from 1950 through 1970 before rising 14.5% from 1970 through 1989. Real house prices declined in the early 1980s as a result of the increase in real after-tax interest rates and the decline in real materials costs. The recovery of house prices in the late 1980s is attributed to lower unemployment and real after-tax interest rates and particularly to demographic.factors associated with the aging of baby boomers.

Unclassified HOUSE PRICES AND ECONOMIC ACTIVITY ECONOMICS DEPARTMENT WORKING PAPERS No. 279

2011

This paper reviews the role of house prices in influencing private consumption and residential investment in OECD countries. Deregulation of the mortgage markets in most OECD countries since the 1970s has made it easier for households to borrow for current consumption on the basis of their housing wealth, and the easing of borrowing constraints has often been accompanied by sizeable withdrawal of housing equity. The analysis presented in the paper and a review of existing empirical work for the major OECD countries suggest that house prices have a significant positive impact on private consumption through wealth effects and/or an easing of liquidity constraints. House prices also influence the profitability of house building, and in many countries there is a close association between profitability of house construction and private residential investment. A corollary of these results is that residential property prices can be useful indicators of demand pressures in the economy.

House Prices and Economic Activity

OECD Economics Department Working Papers, 2001

Assessing High House Prices: Bubbles, Fundamentals and Misperceptions

Journal of Economic Perspectives, 2005

We construct measures of the annual cost of single-family housing for 46 metropolitan areas in the United States over the last 25 years and compare them with local rents and incomes as a way of judging the level of housing prices. Conventional metrics like the growth rate of house prices, the price-to-rent ratio, and the price-to-income ratio can be misleading because they fail to account both for the time series pattern of real long-term interest rates and predictable differences in the long-run growth rates of house prices across local markets. These factors are especially important in recent years because house prices are theoretically more sensitive to interest rates when rates are already low, and more sensitive still in those cities where the long-run rate of house price growth is high. During the 1980s, our measures show that houses looked most overvalued in many of the same cities that subsequently experienced the largest house price declines. We find that from the trough of 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not, in most cities, to levels that made houses look overvalued.

Property Prices and Real Estate Financing in a Turbulent World

observed property prices are assembled from an unobservable 'real' property price linked to macroeconomic conditions and the interest rate environment, and a noisy component given by market sentiment. Between January 1993 and July 2007 all IPD index logarithmic returns were positive. This long series of positive returns created an illusion among investors. It implied that they did not give proper consideration to macroeconomic evidence. That changed fundamentally in 2008. During the subprime crisis investor behavior changed from illusion to disillusion and the market prices occasionally fell well below the level indicated by fundamental economic considerations. IPD property derivatives can, according to the author, be used for risk management purposes. Investors have access to Eurex futures that can be utilized to hedge out property risk and avoid the consequences of price crashes. Giovanni Dell'Ariccia and Deniz Igan, IMF Research have authored chapter 3: "Dealing with real estate booms". Until the global financial crisis, the main policy tenet in dealing with a real estate boom was one of 'benign neglect'. It was considered better to wait for the bust and pick up the pieces than to attempt to prevent the boom. The crisis challenged this view. But preventive policy action is difficult to implement. The authors conclude that policy efforts should focus on booms that are financed through credit and where leveraged institutions are directly involved. Macroprudential tools (such as limits on loan-to-value ratios) are the best candidates to deal with real estate booms as they can be aimed directly at curbing leverage and strengthening the financial sector. Cycles are a common feature of real estate markets. Stylized facts suggest that the longer and higher prices go up, the more they will come down. Housing cycles are closely intertwined with credit and business cycles. Peaks and troughs are not far from each other. There are significant differences across countries. Legal and institutional structures matter. In order to improve policy options, the quality of empirical data should be heightened. Real estate is an important storage of wealth in the economy. Monetary policy is a blunt instrument for the task at hand. It is difficult to use fiscal tools. So, macroprudential regulation in the form of higher capital requirements, dynamic provisioning and limits on loan-to-value and debtto-income ratios are the most promising options.

What drives housing prices down? Evidence from an international panel

Journal of Economics and …, 2010

In this study, we suggest an explanation for the low growth rates of real housing prices in Canada and Germany in comparison to other OECD countries over the period 1975–2005. We show that the long-run development of housing markets is determined by real ...

Demographic Factors and Real House Prices

1993

Real house prices are directly determined by the willingness of households to pay for (and willingness of builders to supply) a constant-quality house. Changes in the quantity of housing demanded will affect real prices only to the extent that the long-run housing supply schedule is positively sloped. In this paper we use 1980 census data to measure the impact of the age structure and real income per household on the willingness of households to pay for a constant quality house. • Extrapolating these variables forward to 2010, we conclude that evolving demographic forces are likely to raise real house prices, not lower them.

House prices and macroeconomic implications. Current Knowledge

Cuadernos Económicos de ICE

this paper contains a summary of the literature to frame and understand the reasons why the eu regulations such as the macroeconomic imbalance Procedure (miP) and the excessive imbalance Procedure (eiP) include changes in house prices as one of the 14 indicators of economic imbalances. it also discusses whether or not that indicator needs to be complemented to follow housing market dynamics. the paper explains how the housing market is related to real as well as financial markets and how, through the channels of transmission, house prices define the house price channel linking financial shocks with real shocks and create imbalances. A classification of imbalances is also provided in the literature discussed below.

House price dynamics: The role of tax policy and demography (original) (raw)

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