Stuck at Home: Housing Demand during the COVID-19 Pandemic

46 Pages Posted: 6 Dec 2021

See all articles by William Gamber

William Gamber

Federal Reserve Board

James Graham

The University of Sydney - School of Economics; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Anirudh Yadav

Reserve Bank of Australia

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2021

Abstract

The COVID-19 pandemic induced an increase in both the amount of time that households spend at home and the share of expenditures allocated to at-home consumption. These changes coincided with a period of rapidly rising house prices. We interpret these facts as the result of stay-at-home shocks that increase demand for goods consumed at home as well as the homes that those goods are consumed in. We first test the hypothesis empirically using US cross-county panel data and instrumental variables regressions. We find that counties where households spent more time at home experienced faster increases in house prices. We then study various pandemic shocks using a heterogeneous agent model with general equilibrium in housing markets. Stay-at-home shocks explain around half of the increase in model house prices in 2020. Lower mortgage rates explain around one third of the price rise, while unemployment shocks and fiscal stimulus have relatively small effects on house prices. We find that young households and first-time home buyers account for much of the increase in housing demand during the pandemic, but they are largely crowded out of the housing market by the equilibrium rise in house prices.

Keywords: COVID-19, Pandemic, Stay at Home, Housing, House Prices, Consumption, Mortgage Interest Rates, Unemployment, Fiscal Stimulus

JEL Classification: E21, E32, E60, E62, E65, R21, R30

Suggested Citation

Gamber, William and Graham, James and Yadav, Anirudh, Stuck at Home: Housing Demand during the COVID-19 Pandemic (December 1, 2021). CAMA Working Paper No. 97/2021, Available at SSRN: https://ssrn.com/abstract=3975126 or http://dx.doi.org/10.2139/ssrn.3975126

William Gamber

Federal Reserve Board ( email )

20th and C Streets, NW
Washington, DC 20551
United States

James Graham (Contact Author)

The University of Sydney - School of Economics ( email )

Social Sciences Building (A02), Science Road
The University of Sydney
Sydney, NSW 2006 2008
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Anirudh Yadav

Reserve Bank of Australia ( email )

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