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EXPLAINING THE EVOLUTION OF THE U.S. HOUSING MARKET

Published online by Cambridge University Press:  17 July 2017

Byoung Hoon Seok  and
Hye Mi You
Byoung Hoon Seok*
Affiliation:
The Ohio State University and Ewha Womans University
Hye Mi You
Affiliation:
State University of New York at Buffalo and Hanyang University
*
Address correspondence to: Byoung Hoon Seok, Department of Economics, The Ohio State University, 410 Arps Hall, 1945 N. High St., Columbus, OH 43210, USA; e-mail: [email protected]. After September 1, 2017, Department of Economics, Ewha Womans University, 52 Ewhayeodae-gil, Seodaemun-gu, Seoul 03760, Republic of Korea; e-mail: [email protected].
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Abstract

Over the past few decades, both the relative price of housing structures and housing services consumption relative to nondurables increased significantly in the United States. This paper explores demand-side factors such as an increase in idiosyncratic earnings risks and changes in housing institutions as potential explanations for the phenomenon. We build a general equilibrium incomplete markets model of housing and compare two steady states that correspond to the 1967 and 2000 U.S. economies. Our model can generate the simultaneous increase in the relative price of houses and housing services consumption relative to nondurables. We find that the increased earnings risks are crucial in replicating this pattern.

Keywords

Housing MarketIdiosyncratic Earnings RisksPrecautionary Savings
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 2 , March 2019 , pp. 568 - 589
Copyright
Copyright © Cambridge University Press 2017 

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Footnotes

We are indebted to Árpád Ábrahám, Mark Aguiar, Mark Bils, Yongsung Chang, and Jay H. Hong for their invaluable comments. We also thank the two anonymous referees for their insightful comments and suggestions. All remaining errors are ours.

References

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