U.S. House Prices Over the Last 30 Years: Bubbles, Regime Shifts and Market (In)Efficiency (original) (raw)
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Assessing High House Prices: Bubbles, Fundamentals and Misperceptions
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We construct measures of the annual cost of single-family housing for 46 metropolitan areas in the United States over the last 25 years and compare them with local rents and incomes as a way of judging the level of housing prices. Conventional metrics like the growth rate of house prices, the price-to-rent ratio, and the price-to-income ratio can be misleading because they fail to account both for the time series pattern of real long-term interest rates and predictable differences in the long-run growth rates of house prices across local markets. These factors are especially important in recent years because house prices are theoretically more sensitive to interest rates when rates are already low, and more sensitive still in those cities where the long-run rate of house price growth is high. During the 1980s, our measures show that houses looked most overvalued in many of the same cities that subsequently experienced the largest house price declines. We find that from the trough of 1995 to 2004, the cost of owning rose somewhat relative to the cost of renting, but not, in most cities, to levels that made houses look overvalued.
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We all know that housing prices have followed a boom-and-bust trajectory over the past fifteen years, but which segments of the population experienced the sharpest rise and fall—and in which parts of the country? Using transaction-level data from multiple large urban counties, I analyze the entire distribution, breaking down the change in housing prices into quantiles. I measure the change in the distribution in house prices in each city, determine how much of the change can be explained by quality variables, and investigate what differences between the cities might be causing the variation in their housing price distributions—especially during the housing bubble, which some cities experienced more acutely than others. This analysis allows me to identify which segments of the population were most sensitive to the boom-andbust—and in which cities—with policy implications for the role of the housing market in social equity and financial stability going forward. **The author can be con...
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This paper studies U.K. regional house prices across nine regions from January 2005 to December 2017 to identify regional versus national effects on house prices and potential house price bubbles. It uses a version of the Gordon dividend discount model, modelling house prices as the present value of imputed rents as a measure of fundamentals. It differentiates between long-term and short-term effect using pooled mean group (PMG) and mean group estimation (MG) to determine variations in regional house prices during different periods relating to the most recent financial crisis. The results confirm that the crisis had differentiating effects in the short term, but there is reversion back to long-run fundamentals. Regional trend analysis shows that the house price growth in the regions has been affected differently in the short run and each region has varying long-run fundamentals. Residential property values in London have shown strongest short-run momentum.
A Regime Shift Model of the Recent Housing Bubble in the United States
SSRN Electronic Journal, 2006
A REGIME SHIFT MODEL OF THE RECENT HOUSING BUBBLE IN THE UNITED STATES It has been widely assumed that there was a bubble in the U.S. housing market after1999. This paper analyzes the extent to which that was true. We define a bubble as: (1) a regime shift that is characterized by a change in the properties of deviations from the fundamentals of house price growth, and (2) where a shock to the fundamental equation is more self sustaining and volatile than in other periods. We model the fundamentals of price growth as a lagged adjustment of prices to the expected present value of future rent. We then study the autoregressive behavior of the residuals thus generated. We look at changes in momentum (the extent to which a shock to house price growth leads to further increases in house price growth) of the residuals. Our results from 44 Metropolitan Statistical Areas for the period of 1980-2005 (quarterly data) are mixed. There is evidence of momentum in house price growth throughout the period, and momentum did increase after 1999, indicating a regime shift; but by a modest amount, and while momentum was sometimes strong it was not explosive. The regime shift was less apparent in the likely bubble candidate cities along the coasts, which had shown high growth in the past. The evidence on volatility is strong. In general, volatility did not increase in the nonbubble MSAs, and it decreased in the faster-growing bubble MSAs.
Are Housing Price Cycles Asymmetric? Evidence from the Us States and Metropolitan Areas
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This paper investigates asymmetry in US housing price cycles at the state and metropolitan statistical area (MSA) level, using the Triples test (Randles, Flinger, Policello, & Wolfe, 1980) and the Entropy test of Racine and Maasoumi (2007). Several reasons may account for asymmetry in housing prices, including non-linearity in their determinants and in behavioural responses, in particular linked to equity constraints and loss aversion. However, few studies have formally tested the symmetry of housing price cycles. We find that housing prices are asymmetric in the vast majority of cases. Taking into account the results of the two tests, deepness asymmetry, which represents differences in the magnitude of upswings and downturns, is found in 39 out of the 51 states (including the District of Columbia) and 238 out of the 381 MSAs. Steepness asymmetry, which measures differences in the speed of price changes during upswings and downturns, is found in 40 states and 257 MSAs. These results...
This paper studies U.K. regional house prices across nine regions from January 2005 to December 2017 to identify regional versus national effects on house prices and potential house price bubbles. It uses a version of the Gordon dividend discount model, modelling house prices as the present value of imputed rents as a measure of fundamentals. It differentiates between long-term and short-term effect using pooled mean group (PMG) and mean group estimation (MG) to determine variations in regional house prices during different periods relating to the most recent financial crisis. The results confirm that the crisis had differentiating effects in the short term, but there is reversion back to long-run fundamentals. Regional trend analysis shows that the house price growth in the regions has been affected differently in the short run and each region has varying long-run fundamentals. Residential property values in London have shown strongest short-run momentum.