The Economic Theory of Housing Demand: A Critical Review

Despite thirty years of modeling housing markets, housing analysts still have difficulty accurately assessing housing demand. This article reviews the current state of the art in economic modeling of housing demand determinants and suggests a future direction for further research. The fully developed economic theory of the housing market for analyzing housing decisions is the neoclassical consumer theory of housing demand. The review of the various modifications that have been made to better operationalize the imperfect and noncompetitive features of the housing market show that these modifications have been introduced in several partial models. These models include tenure choice models, search models, mobility models, and housing trait models. There is currently no single model that incorporates all of the modifications attempted in these partial models. In fact, it may be impossible to operationalize and incorporate all of the modifications of the neoclassical model into a single model. Therefore, the most feasible and conceptually correct research strategy to advance our understanding of housing consumption decisions is to analyze the impact of demographic and social processes on housing consumption decisions. There is a need to research how to include demographic and sociological constructs that capture the attitudes, preferences, and perceptions of the consumer into the classical economic model of housing demand.

Editors' Introduction

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/74487/1/1540-6229.00632.pd

An Analysis of the "Ex Ante" Probabilities of Mortgage Prepayment and Default

Observed mortgage prepayment and default rates have been far different than the ruthless option exercise rates predicted by contingent claims models of mortgage pricing. The discrepancies have been attributed to both the competing-risk nature of prepayment and default and to transactions costs. This paper tries a different means of reconciliation. We introduce a third stochastic process, household income, into the usual pricing model that includes only the spot interest rate and the house price. The presence of income allows considering consumption-theoretic determinants of termination. The role of mortgage underwriting rules in restricting optimal prepayment is also explicitly modeled. Numerical ex ante prepayment and default rates based on the theoretical model come much closer to historical experience. Copyright American Real Estate and Urban Economics Association.

Do Borrowing Constraints Change U.S. Homeownership Rates?

This study has two main objectives. First, we estimate various alternative specifications of the tenure choice model with borrowing constraint variables, originally put forth by Linneman and Wachter, using a more recent sample of the Survey of Consumer Finance. Second, we simulate effects of policy changes governing constraints and changes in mortgage interest rates, both on households' owning decisions and on the aggregate homeownership rate. While the impact of constraints has been demonstrated in previous studies, our research provides the first microsimulation estimates of the impact for aggregate homeownership rates for the entire U.S. population.

A comparative analysis of taipei housing model

[[abstract]]This paper attempts to demonstrate the usefulness of the hedonic approach to the study of housing markets in Taipei, and discusses the price variations on hedonic structure within a metropolitan area. A method proposed by Box and Cox is used to search for the best hedonic specification. Findings suggest that the empirical works reject the identical relationships across submarkets. The specification of λ in each submarket is different, ranging from 0.03 to 0.90.[[notice]]補正完畢[[journaltype]]國外[[incitationindex]]EI[[booktype]]紙本[[countrycodes]]IN