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Markets where buyers also are sellers : how realized home equity may work as an accelerator of house prices
| Content Provider | Semantic Scholar |
|---|---|
| Author | Larsen, Erling Røed |
| Copyright Year | 2010 |
| Abstract | The house price level is a function of buyers' realized home equity, and buyers' realized home equity is a function of the house price level. This interdependence follows from the fact that buyers are sellers in the same market. This article examines under what conditions this leads to a possible upward-sloping demand curve with a potentially unstable equilibrium. I employ a parsimonious model with two kinds of buyers, and utilize an augmented Slusky-equation that decomposes Walrasian demand into a substitution, an income, and an endowment income effect. The model demonstrates that instability may occur if first-time buyers' demand is sufficiently inelastic, leverage is stretched, debt-financing is common, and nth-time buyers are relatively more frequent than first-time buyers. Regulation on leverage and a capital gains tax reduce the likelihood of upward-sloping demand. The article utilizes new data from Norway to examine an empirical indicator of an equity accelerator of house prices and finds that over the period 2000-2008 the value of all housing transactions exceeded the aggregate net growth of mortgages by 50%, indicating substantial equity financing. In one year, 2008, the value of aggregate housing transactions was double the growth in net mortgages. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://www.ssb.no/a/publikasjoner/pdf/DP/dp618.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
