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Title: Housing Markets and Labor Mobility
Resulting in 1 citation.
1. Engelhardt, Gary V.
Housing Markets and Labor Mobility
Working Paper, Department of Economics, Dartmouth College and NBER, October 1998
Cohort(s): NLSY79
Publisher: National Bureau of Economic Research (NBER)
Keyword(s): Home Ownership; Mobility, Labor Market

An important theme in corporate finance and macroeconomics is the effect of collateral constraints on asset price fluctuations. Temporary economic shocks that depress the value of assets used both for productive purposes and collateral can reduce the net worth of firms, reduce the asset demand for constrained firms, and result in lower asset prices, which then further reduces net worth and feeds back into prices. This link between asset prices and collateral has been examined recently by Kiyotaki and Moore (1997), Kashyap Scharfstein, and Weil (1990), and Shleifer and Vishny (1992), among others. Stein (1995) has examined this behavior in housing markets. Because most home purchases are mortgage-financed, housing is a relatively highly-leveraged asset. Large price fluctuations can affect equity and the demand for housing greatly. In particular, an adverse shock to prices decreases equity, results in collateral-constrained households that cannot move, which decreases demand, and results in further price declines that further constrain household mobility. Interestingly, this model is able to explain housing market behavior that cannot be explained by the standard asset-market model of Poterba (1984), e.g., rapid prices swings, the strong positive correlation of prices and trading volume over the housing cycle, and the observed reluctance of prospective sellers to reduce asking prices in down markets.
Bibliography Citation
Engelhardt, Gary V. "Housing Markets and Labor Mobility." Working Paper, Department of Economics, Dartmouth College and NBER, October 1998.