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Working paper

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. The authors 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. They first test the hypothesis empirically using US cross-county panel data and instrumental variables regressions. They find that counties where households spent more time at home experienced faster increases in house prices. The authors 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. They 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.

Publication Details
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All Rights Reserved
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CAMA Working Paper 97/2021