: Homeowners' financial vulnerability over the house price cycle
This paper investigates the dynamics of financial vulnerability of indebted homeowners over the housing cycle with an agent-based housing market model. The model is calibrated using UK micro data. I find that financial vulnerability is driven by previous period house purchases and by dissaving due to a wealth effect on consumption. While the first channel is more important in the upswing, the dissaving channel is more important at high price levels. A second finding is that current vulnerability is path-dependent on past purchases at high prices, as due to the wealth effect, these past purchases lead to temporary high consumption.
Homeowners' financial vulnerability over the house price cycle
IMK Working Paper, Düsseldorf, 42 Seiten