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Uncertainty in the housing market: Evidence from the US states

Maria Christidou () and Stilianos Fountas ()
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Maria Christidou: Department of Economics, University of Macedonia

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: Housing is distinct from other financial assets, since it is a durable consumer good for households. Due to the irreversible nature of housing investment, uncertainty should be an important determinant of housing investment. From a theoretical point of view, though, this impact is ambiguous. This paper extends previous empirical work by employing the techniques of bivariate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models in a group of fortyeight US states. In particular, we use data on housing permits as a proxy for housing investment and the house price index for the forty-eight contiguous US states and estimate bivariate GARCH models (BEKK) for each state, in order to obtain proxies of housing investment and house price uncertainty. Moreover, we use the Economic Policy Uncertainty index as an alternative measure of uncertainty. This setup allows us to test for the impact of uncertainty on housing investment growth and house price inflation and examine whether the effects differ across the different states. In general, we find that in most states uncertainty tends to increase housing investment growth and to decrease house price inflation. The cross-state differences in results may be due to variation in the degree of speculation in housing markets.

Keywords: housing; house prices; investment; uncertainty; GARCH. (search for similar items in EconPapers)
JEL-codes: L11 L13 L41 L42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2017-08, Revised 2017-08
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Journal Article: Uncertainty in the housing market: evidence from US states (2018) Downloads
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