Revisiting the House Price-Income Relationship

Elias Oikarinen, Steven Bourassa, Martin Hoesli and Janne Engblom

LARES from Latin American Real Estate Society (LARES)

Abstract: This study undertakes a systematic analysis of the relationship between house prices and personal income by deriving a simple spatial equilibrium model and conducting an empirical analysis using data for the 50 largest U.S. Metropolitan Statistical Areas (MSAs) for the period 1980-2014. In the empirical analysis, we apply state-of-the-art panel data analysis tools, define income in multiple ways, allow for regional heterogeneity, and control for spatial dependence and endogeneity. Both theoretical considerations and empirical findings lead us to conclude that the house price-income ratio is not a good indicator for house price bubbles. We find that the house price-income ratio is not stable in the long run for most cities. In contrast, panel regression models that allow for regional heterogeneity and control for endogeneity yield stationary equations for house prices in most MSAs. Among other findings, we show that it is important to allow for heterogeneity across locations when analyzing the relationship between house prices and income. The findings also have implications for trends in the wealth-income relationship.

Keywords: cross-sectional dependence; Dados do paneil; Dependência transversal; Equilíbrio espacial; Heterogeneidade regional; House Prices; Panel Data; personal income; Preços de casas; regional heterogeneity; Renda pessoal; spatial equilibrium (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2017-09-01
New Economics Papers: this item is included in nep-ure
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Related works:
Working Paper: Revisiting the House Price-Income Relationship (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:lre:wpaper:lares_2017_paper_26

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