House Price Growth Synchronization and Business Cycle Alignment

Cheol Eun (), Lingling Wang () and Tim Zhang ()
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Cheol Eun: Georgia Institute of Technology
Lingling Wang: University of Connecticut
Tim Zhang: University of Wyoming

The Journal of Real Estate Finance and Economics, 2022, vol. 65, issue 4, No 6, 675-710

Abstract: Abstract One of the most notable trends in the U.S. housing market in the recent decades is the increasing house price growth (HPG) synchronization across states. Using four decades of data, we provide novel evidence that the increasing HPG synchronization leads to higher business cycle alignment across U.S. states. One standard deviation increase in HPG synchronization is associated with a 15%, 12%, and 10% increase in the alignment of the states’ gross state product, employment, and income growth, respectively. The relation is stronger between states with similar banking development and in non-tradable sectors. Supporting both the collateral and direct wealth effect channels, we find more aligned house-secured borrowing activities and consumption growth between states with more synchronized house price growth. Results also hold at the MSA level and are robust to various endogeneity controls, including a Bartik-type instrument. Overall, our findings suggest that the housing market integration can lead to amplified business cycles associated with an increased systemic economic risk at the country level.

Keywords: House price growth synchronization; Business cycle alignment; Housing collateral; Consumption growth; Banking integration and development (search for similar items in EconPapers)
JEL-codes: E32 G21 O47 R11 R30 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11146-021-09849-x

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