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U.S. housing: Unaffordable to buy, but wealth-building to own
A home is not only a place to live. It is a long-lived asset whose value reflects the housing service it provides over time and the return buyers require, given interest rates and risk. The ongoing combination of high house price-to-rent ratios and strained affordability suggests housing remains a macroeconomic vulnerability, though financial conditions appear more resilient than before the housing bust and subsequent Global Financial Crisis of 2008.
Working Paper
A Theory of Housing Demand Shocks
Aggregate housing demand shocks are an important source of house price fluctuations in the standard macroeconomic models, and through the collateral channel, they drive macroeconomic fluctuations. These reduced-form shocks, however, fail to generate a highly volatile price-to-rent ratio that comoves with the house price observed in the data (the ?price-rent puzzle?). We build a tractable heterogeneous-agent model that provides a microeconomic foundation for housing demand shocks. The model predicts that a credit supply shock can generate large comovements between the house price and the ...