Regional composition of national house price cycles in the US

Jan Prüser and Torsten Schmidt

No 853, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: House price cycles may have considerable macroeconomic effects even if they evolve heterogeneous across local markets. In this paper we use a panel Markov switching model allowing for time-varying volatility to analyze national and state level house price regimes for the US jointly. Our approach identifies three house price regimes endogenously. A nationwide boom regime, a spatially limited bust regime and a nationwide bust regime. The spatially limited bust regime occurs in the coastal states where compared to other states the population density is high, the unemployment rate, the housing density as well as the land supply elasticity is low. This spatially limited bust regime usually follows a nationwide house price boom. Hence, house price movements in the coastal states usually determine the nationwide cycle in the US. Moreover, boom and bust cycles are accompanied by an exaggeration of house price increases during the boom in this group of states. In contrast, a bubble in the housing market occored in almost all states previous to the Great Recession. This is one explanation for the severity of the Great Recession.

Keywords: house price cycles; regional house prices; Markov switching (search for similar items in EconPapers)
JEL-codes: C11 C32 E31 R31 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-mac, nep-ore and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:853

DOI: 10.4419/86788989

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