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    Housing Formation and Unemployment Rates

    The Journal of Real Estate Finance and Economics

    Year: 2014

    This paper investigates the impact of shocks in the unemployment rate on
    household formation. Prior research has shown that negative economic shocks reduce
    household formation, but does not inform how long the declines in household formation
    will persist. Using time series data from 1975 to 2011, we examine how households
    respond to unemployment rate shocks and estimate the length of time it takes for
    households to return to its original level in a vector autoregressive model. The results
    demonstrate that household formation falls in the quarter after unemployment increases,
    and that it can take up to 10 quarters to return its previous level.While this is a substantial
    length of time, one implication of these results is that even a permanent increase in the
    unemployment rate will not permanently affect housing formation in the long run.

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