Housing purchases and the dynamics of housing wealth.pdf

Housing purchases and the dynamics of housing wealth Olympia Bover November 2010 Abstract I model the purchase behavior of main and secondary housing by Spanish households using the panel sample from the Örst two waves of the Spanish household Önance survey (EFF). I estimate discrete hazard models using retrospective and within-period purchase sequences. I also estimate an (S,s) model combining transactions data with longitudinal information on household wealth and housing stock values. I look at the role of adaptive expectations about the rate of return on housing and Önd they have a positive and signiÖcant e§ect on the demand for houses. This is true for historical and within-period purchase probabilities as well as for the target ratio of housing wealth to total wealth. The volatility of house price growth has a negative e§ect on purchases for investment but a positive one on purchases for consumption. Keywords: Household Önance, house purchases, secondary homes, housing re- turns, adaptive expectations, (S,s) rule. Research Division, Banco de EspaÒa. I am grateful for useful comments and suggestions to Manuel Arellano, Steve Bond, Martin Browning, Janice Eberly, Tullio Jappelli, Philipp Kircher, John Muellbauer, Enrique Sentana, Javier Su·rez, Annette Vissing-Jorgensen, Guglielmo Weber, and participants at the CES Conference on Household Finance in Athens, September 2010. I would also like to give special thanks to Jorge MartÌnez PagÈs, Julio RodrÌguez, and Pilar Velilla for their help with the aggregate data. 1 Introduction In this paper I model the purchase behavior of main and secondary ho