House Transactions in the Macroeconomy as Needs Change over the Life Cycle

Abstract: A long-term overlapping generations macroeconomic framework is presented, in which a downsizing old generation bargains with an upsizing middle-aged generation to settle on house prices. In this model, both expectations, which are coordinated by the relative bargaining power of each generation, and credit conditions, which influence the range of prices each side will accept, are important for the resulting house price. High house prices bind more wealth to an asset without dividend, so decreasing the house price is found to generally be welfare-improving in the long run. A decreased price can be accomplished by strengthening the relative bargaining position of the middle-aged buyer generation or by tightening credit conditions, although the latter can have negative side effects.