Business and Real Estate Price Cycles Across the U.S.: Evidence from a Vector Markov-Switching Regression Exercise

Aram Balagyozyan, Christos Giannikos and Kyoko Mona

Journal of Housing Research, 2016, vol. 25, issue 1, 81-104

Abstract: In this study, we examine whether house price cycles led or lagged business cycles in the state-level U.S. data from 1979 to 2012. We use a vector Markov-switching model to test for various lead/lag scenarios across the U.S. For the majority of the U.S. states as well as the aggregate U.S., we could not reject the hypothesis that between 1979 and 2012 house prices did not lead the economy. We find that between 2002 and 2011, house prices led the economy in 22 states and nationally. The states where prior to the 2007 recession house prices grew faster than six times the state's population growth rate were almost guaranteed to suffer the economic consequences of the pre-2007 house price decline.

Date: 2016
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DOI: 10.1080/10835547.2016.12092114

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