DP8128 Housing purchases and the dynamics of housing wealth

Author(s):	Olympia Bover
Publication Date:	December 2010
Keyword(s):	(S,s) rule, adaptive expectations, house purchases, Household finance, housing returns, secondary homes
JEL(s):	D14, G11
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=8128

I model the purchase behavior of main and secondary housing by Spanish households using the panel sample from the first two waves of the Spanish household finance survey (EFF). I estimate discrete hazard models using retrospective and within-period purchase sequences. I also estimate an (S,s) model combining transactions data with longitudinal information on household wealth and housing stock values. I look at the role of adaptive expectations about the rate of return on housing and find they have a positive and significant effect on the demand for houses. This is true for historical and within-period purchase probabilities as well as for the target ratio of housing wealth to total wealth. The volatility of house price growth has a negative effect on purchases for investment but a positive one on purchases for consumption.