National, regional and metro-specific factors of the U.S. housing market

Dong Fu

No 707, Working Papers from Federal Reserve Bank of Dallas

Abstract: We build a dynamic latent factor model to decompose housing prices in major U.S. metropolitan areas into national, regional, and metro-specific idiosyncratic factors, in order to distinguish the different dynamics behind housing price movements. We find that there is a distinctive national factor that has contributed about one-fourth of the individual metropolitan's housing price volatility. The regional factor accounts for another one-fourth and the idiosyncratic factor explains about half of housing price fluctuations. However, at the regional level, the factors' contributions vary across a fairly wide range. Although it only has modest explanatory power of housing price volatility, the national factor seems to account for much of the price increase in the current housing boom. Interestingly, the regional factor exerts negative influence on housing prices in a fairly large number of metros lately, only to be outweighed by the national factor's positive contribution. We also explore the possible forces influencing the national factor of housing price movements, including monetary policy, population growth, real economic activity, general inflation and other asset prices.

Keywords: Housing (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-geo and nep-ure
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