Hot and Cold Housing Markets: International Evidence

Javier Suarez and Jose A. Ceron

No 5411, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper examines the experience of 14 developed countries for which there are about 30 years of quarterly inflation-adjusted housing price data. Price dynamics is modelled as a combination of a country-specific component and a cyclical component. The cyclical component is a two-state Markov switching process with parameters common to all countries. We find that the latent cyclical variable captures previously undocumented changes in the volatility of real housing price increases. These volatility phases are quite persistent (about six years, on average) and occur with about the same unconditional frequency over time. In line with previous studies, the mean of real housing price increases can be predicted to be larger when lagged values of those increases are large, real GDP growth is high, unemployment falls, and interest rates are low or have declined. Our findings have important implications for risk management in regard to residential property markets.

Keywords: Housing prices; Cycles; Volatility; Markov switching (search for similar items in EconPapers)
JEL-codes: E32 G15 R31 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-bec, nep-fin, nep-fmk, nep-geo, nep-mac, nep-rmg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Working Paper: Hot and Cold Housing Markets: International Evidence (2006)
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