Bubble, Bubble, Toil and Trouble An econometric analysis of the determinants of housing prices

Date of Award

2010

Document Type

Thesis

Degree Name

Bachelors

Department

Social Sciences

First Advisor

Coe, Richard

Keywords

Housing Prices, Credit Standards, Housing Bubble

Area of Concentration

Economics

Abstract

In this thesis the housing demand function is updated to include a better representation of the investment component of home-ownership and the availability of credit. By modeling the investment component of housing with a available substitute investments, similarly to the current model for the consumption component of housing, a more complete demand function was created that fully incorporated after-tax gains of homeownership into the demand function. Using an Autoregressive Distributed Lag (ADL) (2,1) model, the additions to the theoretical framework of housing demand were examined, in three time tiers. Despite high-levels of multicollinearity, the investment proxy of AAA rated bonds was found to be highly significant and negatively correlated to housing prices across all tiers indicating that the rate of return on other investments does affect housing prices. The credit availability proxy of LTV ratios were found to be fairly significant with a positive sign, leading the researcher to believe that as credit became more readily available housing prices increased.

Rights

This bibliographic record is available under the Creative Commons CC0 public domain dedication. The New College of Florida, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.

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