First-Time Home Buyers and Residential Investment Volatility

51 Pages Posted: 14 Jan 2008

See all articles by Jonas D. M. Fisher

Jonas D. M. Fisher

Federal Reserve Bank of Chicago - Economic Research Department

Martin Gervais

University of Iowa; IFS

Date Written: November 2007


Like other macroeconomic variables, residential investment has become much less volatile since the mid-1980s (recent experience notwithstanding.) This paper explores the role of structural change in this decline. Since the the early 1980s there have been many changes in the underlying structure of the economy, including those in the mortgage market which have made it easier to acquire a home. We examine how these changes affect residential investment volatility in a life-cycle model consistent with micro evidence on housing choices. We find that a decline in the rate of household formation, increased delay in marriage, and an increase in the cross-sectional variance of earnings drive the decline in volatility. Our findings provide support for the view that the "Great Moderation" in aggregate fluctuations is not just due to smaller aggregate shocks, but is driven at least in part by structural change.

Keywords: Business Cycles, Housing, Residential Investment, First-Time Home-Buyers, Great Moderation

JEL Classification: E22, E32, J11, R21

Suggested Citation

Fisher, Jonas D. M. and Gervais, Martin, First-Time Home Buyers and Residential Investment Volatility (November 2007). FRB of Chicago Working Paper No. 2007-15, Available at SSRN: or

Jonas D. M. Fisher (Contact Author)

Federal Reserve Bank of Chicago - Economic Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States

Martin Gervais

University of Iowa ( email )

108 Pappajohn Building
Iowa City, IA 52242
United States

IFS ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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