Rafael González-Val (p), Miriam Marcén

In this paper, we examine the link between regional house prices and divorce in Spain. We consider data from 50 Spanish provinces (NUTS III regions) from 1998 to 2013. The divorce rate is defined as the annual absolute number of divorces per thousand inhabitants in each region. We use data on Spain, since the Spanish housing market experienced strong rise in house prices until 2006, when the housing bubble ended and prices dramatically decreased. By using different econometric techniques, our results reveal that there is a significant positive relationship between housing prices and the divorce rate. Results also show the existence of different geographical patterns, as there are significant differences in the evolution of house prices across regions.

Tae-Heon Moon (p), Jin-Hak Lee, Sun-Young Heo, Seoung-Bum Kim

Recently economic, social, cultural functionality in the urban region in Korea has declined due to the decrease in household population and urban sprawl. To cope with this phenomenon, new development paradigm based on urban regeneration came to the fore in urban development policy in Korea. Since 2011, Korea government has selected two test beds for unban regeneration and executed projects, where various urban vitalization policies appropriated to a specific region are developed and applied for them. Ultimately, the government expect that the effect of the urban regeneration policies would revive socio-economic functionality in the urban area and more importantly trigger new waves of urban regeneration development in other areas.
While even in other areas such urban regeneration development has been actively conducted, there are only few researches in Korea on evaluating the effect of the development. Most of the relative studies evaluated the effect based on interviews and focused on qualitative analysis. This study seeks to analyze quantitatively the effect of the urban regeneration on two test bed regions in Korea, Jeonju city and Changwon city. This study takes real-estate trade data from 10 apartment districts in Jeonju and 7 in Changwon, which includes 3,582 trade cases with real-estate price between 2006 and 2015.
With the time-series data, we employ shift-share analysis to analyze regional real-estate growth effect (RG), regional apartment growth effect (AG), and test bed local share effect (TS) resulted from the real-estate trades. The analysis results reveal that the urban regeneration in the early stage influenced more on RG and AG than TS but later TS is much stronger than the sum of RG and AG. The result derived from this study would be beneficial to predict or monitor real-estate market trend, which leads on decreasing financial risk and at the same time increasing sustainability on the urban regeneration development.

Florian Huber, Petra Staufer-Steinnocher (p), Manfred M. Fischer

While there is an established literature studying the effect of housing on business cycles, the literature on the relationship between house prices and monetary policy is fairly limited. In this study the interest focuses on the regional differences in the response of house prices to policy shocks in the US. To address this issue we suggest a methodological approach that consists of two steps. In the first step we use a dynamic factor model estimated on state-level data from the mid-1990s to the end of 2016 via Bayesian methods to disentangle the relative importance of the (latent) common component in house price movements from local (state- or region-specific) shocks. Once obtained an estimate of the common factor from the dynamic factor model, the second step involves using a VAR to investigate the importance of monetary policy shocks in driving the common component of house prices.

The VAR includes standard macroeconomic data as well as our data on house prices. Using some recently developed VAR identification techniques to extract monetary shocks, and the identified shocks in a counterfactual experiment gives us an idea of the magnitude of the importance of expansionary monetary policy on house prices. The virtue of our approach is that we combine a small number of national level variables (total reserves, the Federal Funds rate, consumer price inflation, growth in real GDP, the thirty-year mortgage rate) with a selection of regional variables capturing local economic conditions without losing too many degrees of freedom. The factor augmented VAR (FAVAR) hence yields a parsimonious model that allows us to analyze the effects of national shocks on regional economies in the US.

Lars Vandrei (p)

In a declining market, home owners hesitate to adjust prices to a smaller demand. The majority of literature addresses this issue using search and matching models. A behavioral approach as it is very common in the economic finance literature has only been considered briefly to explain price rigidities. This work provides a theoretical model in order to better understand incentives on the supply and demand side of the housing market.
From a behavioral finance perspective and in particular the prospect theory, utility is determined by changes in wealth rather than absolute values. Prospect theory further suggests different attitudes towards risk for potential losses and potential profits. Thus, the price setting mechanism is influenced by a certain reference point, e. g. the originally paid price or the house's construction costs. Therefore, the market development dictates whether home owners accept purchase offers easily or are reluctant to sell. In particular, if the market faces a downturn and the market value of an object falls below the originally paid nominal price, sellers will be less averse towards risk. On the other hand, sellers might accept prices below the market value but above the originally paid price if the market developed favorably.
The most pressing question is how prices are determined on the housing market. Following finance literature, the price evolution can be thought of as a stochastic process, i.e. a Brownian motion. This would suffice to explain different attitudes towards risk for homogeneous agents. However, according to the underlying value function in prospect theory, the buyer would not be willing to buy a house at market price for sheer investment purposes, since it is too risky. Therefore, in my model, the personal assessment of a houses value consists of two components: the investment value and the personal housing value.
My model especially applies for the market for single-family homes, since this type of accommodation is typically owner occupied and makes up a large part of the housing stock in rural areas. Not only does the model help understand why households might be reluctant to sell even if the current housing situation is suboptimal in regard to e. g. household size. It does also suggest a higher ratio of vacant houses for markets which took a downturn and thus provides a starting point for further research as well as policy measures.