House price fluctuations and residential sorting

Arbeitspapier

Empirical evidence suggests that local jurisdictions are internally more heterogeneous than standard sorting models predict. We develop a dynamic multiregion model, with fluctuating regional house prices, where an owner-occupying household's location choice depends on its current wealth and its current 'match' and involves both consumption and investment considerations. The relative weights of the consumption and investment motives in the location choice determine the equilibrium pattern of residential sorting, with a strong investment (consumption) motive implying sorting according to match (wealth). The model predicts a negative relation between size of house price fluctuations and residential sorting in the match dimension. Also movers should be more sorted than stayers. These predictions are consistent with evidence from US metropolitan areas when income, age and education are used as proxies for the match.

Object Details

• ISBN: 978-952-462-511-1
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Finland Research Discussion Papers ; No. 14/2009

Classification and Topics

• Classification: Wirtschaft ; Personal Income, Wealth, and Their Distributions ; Incomplete Markets ; General Equilibrium and Welfare Economic Analysis of Regional Economies ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
• Subject: residential sorting ; house prices ; incomplete markets ; owneroccupation ; household mobility

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Haavio, Markus ; Kauppi, Heikki
• Event: Veröffentlichung
• (who): Bank of Finland
• (where): Helsinki
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/212135
• Last update: 10.03.2025, 11:43 AM CET