Title
MACROECONOMIC UNCERTAINTY AND THE COMOVEMENT IN BUYING VERSUS RENTING IN THE USA
Authors
Abstract
This paper characterizes the sources of the comovement in the U.S metropolitan buy-rentthis end, we used the dynamic factor model to decompose the index into national and local
factors. The national component contributed more to the variation in the buy-rent indices
relative to the local component with variance decomposition values of 72% and 27%
respectively albeit this varied across the cities. We further examined the sensitivity of the
national buy-rent factor to macroeconomic uncertainty. Our full sample results show that
uncertainty has a significant negative effect on the buy-rent behavior thus favouring buying a
home as a wealth accumulation channel and hence a hedge relative to renting a similar home
and investing in other financial assets. The results from the recursive estimation further
confirmed a dominant negative relationship with fewer periods of positive relationship. The
implications of these findings are drawn.
Keywords
Buy-rent choice, consumer behavior, dynamic latent factor model, development, economic uncertainty
Classification-JEL
C32, C38, E21, E30, R31
Pages
93-121