Policy Uncertainty and House Prices in the United States

Mohsen Bahmani-Oskooee and Seyed Hesam Ghodsi

Journal of Real Estate Portfolio Management, 2017, vol. 23, issue 1, 73-85

Abstract: Executive Summary. Previous research has either relied on a time series model or a panel model to establish cointegration between house prices and their main determinants, such as a measure of household income and a measure of interest rates. The findings are mixed but mostly lean toward rejecting cointegration between house prices and economic fundamentals. None of the studies included a measure policy uncertainty in their models. We include a measure of policy uncertainty in our model and use the bounds testing approach for cointegration and error-correction modeling. We find that policy uncertainty has short-run and mostly negative effects on house prices in 24 states. The short-run effects last into the long run in 17 states. Furthermore, cointegration is established in 35 states.

Date: 2017
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DOI: 10.1080/10835547.2017.12089999

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