On the Choice to Rent or Own a House

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Oktober 2013



This book focuses on the choice of owning versus
renting. A life-cycle framework is proposed, where a
¿nitely lived risk averse agent can choose between
owning and renting a house, and is exposed to two
sources of uncertainty: house price and labor
The ¿rst chapter analyzes two alternatives for
renting a given house: (i) a long term
¿xed-price rent contract, and (ii) a rent contract
that is fully adjustable to house prices.
Alternatively, the agent can buy the house borrowing
at the risk free rate. The equilibrium long term
¿xed-price rent and the adjustable rent are derived,
such that the agent is indifferent ex ante between
owning and renting. The second and the third chapter
investigate how the choice of owning a house is
affected by taking a mortgage contract that has a
risk of default. Lenders price the mortgage, charging
a default premium to compensate themselves for
expected losses due to default on the mortgage. As a
result, the cost of mortgage has a major impact on
the owning decision. Moreover, the adjustable rent is
derived, such that the agent is indifferent ex ante
between owning and renting.


Is Economist at European Central Bank, Research
Division. He earned his BA in Economics from University of Verona
(1998), his MSc in Economics from CORIPE (1999), and his PhD in
Business Administration from University of California at Berkeley
(2008). From 2000 to 2004 he worked in the risk management of
Cattolica Assicurazioni and Allianz-Ras.
EAN: 9783639134858
ISBN: 3639134850
Untertitel: Why Rents and Mortgages Rates Are Jointly Determined. Paperback. Sprache: Englisch.
Verlag: VDM Verlag Dr. Müller e.K.
Erscheinungsdatum: Oktober 2013
Seitenanzahl: 80 Seiten
Format: kartoniert
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