Boston Fed: the housing portfolio effect
A recent study by the Boston Federal Reserve investigates the effects of housing price predictability on portfolio choice decisions in the housing market. According to the paper, housing prices present a certain degree of predictability and motivate agents to invest heavily when it is on an upward trend.
Using aggregate US data on growth of housing prices, the authors develop a wealth-house ratio to measure agents' relative wealth to house value, subject to transaction costs. The study finds
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