Is housing still the business cycle? Perhaps not

Richard K. Green

Chapter 10 in Handbook of Real Estate and Macroeconomics, 2022, pp 269-283 from Edward Elgar Publishing

Abstract: Green (1998) showed that under a wide range of specifications, residential investment led GDP, while non-residential investment did not. That paper was followed by a number of others, including Coulson and Kim (2000), Davis and Heathcoate (2005) and Leamer (2007) that used more sophisticated techniques than my paper, but found the same outcome - that residential investment led GDP. Leamer famously announced that housing was the business cycle. But in light of the Great Financial Crisis, the subsequent crash in residential investment, and the fundamental changes in the mortgage market, I thought it worth revisiting housing as a leading indicator. Housing is a much weaker leading indicator than before and is much less sensitive to Federal Reserve Policy - especially changes in the Federal Funds Rate - than before. It is possible that the culprit is increasing stringency of local land use policy.

Keywords: Asian Studies; Economics and Finance; Urban and Regional Studies (search for similar items in EconPapers)
Date: 2022
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