The Impact of Low-Income Home Owners on the Volatility of Housing Markets

Our paper analyses the relationship between homeownership rates as a proxy for the ratio of low income homeowners and the volatility of housing prices. There might be a destabi-lizing impact because income risks of low income households might be higher, financial resources tend to be scarcer and their houses are probably financed with a higher leverage. Lower mobility and sticky wages of low income homeowners might on the other hand have a stabilizing impact on housing prices. Our results point to a positive impact of home ownership rates on house price volatility. Besides that house price volatility is influenced by the growth rate of house prices, GDP volatility and the level of interest rates. A VAR analysis suggests that the higher volatility in countries with high home ownership rates is caused by a greater sensitivity of house prices to changes in GDP growth rates.