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Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/209243
Rational housing demand bubble
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We provide a unified framework with demand for housing over the life cycle and financial frictions to analyze the existence and macroeconomic effects of rational housing bubbles. We distinguish a housing price bubble, defined as the difference between the housing market price and its fundamental value, from a housing demand bubble, which corresponds to a situation where a pure speculative housing demand exists. In an overlapping generation exchange economy, we show that no housing price bubble occurs. However, a housing demand bubble may occur, generating a boom in housing prices and a drop in the interest rate, when households face a binding borrowing constraint. The multiplicity of steady states and endogenous fluctuations can occur when credit market imperfections are moderate. These fluctuations involve transitions between equilibria with and without a housing demand bubble that generate large fluctuations in housing prices consistent with observed patterns. We finally extend the basic framework to a production economy and we show that a housing demand bubble increases housing prices, which can still be characterized by large fluctuations.
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CLAIN-CHAMOSSET-YVRARD, Lise, RAURICH, Xavier and SEEGMULLER, Thomas. Rational housing demand bubble. Economic Theory. 2024. Vol. 77, num. 699–746. ISSN 0938-2259. [consulted: 10 of June of 2026]. Available at: https://hdl.handle.net/2445/209243