Strategic Complementarities in Housing Markets

Project Details

Description

We develop a model of incomplete information and strategic complementarities in housing markets. Early consumers (house buyers) overreact to news about the fundamental and therefore may find it optimal to delay the purchase of a house. Complementarities in early buying decisions exist due to expectations about increasing demand and house price changes. Complementarities in lending decisions are due to expectations about high collateral values if house prices rise. The model reconciles empirical facts from before the Great Financial Crisis of high credit volumes, high house prices and low mortgage rates.
StatusNot started