On the Price Comovement of U.S. Residential Real Estate Markets

38 Pages Posted: 19 Feb 2008 Last revised: 19 Mar 2011

See all articles by Jarl G. Kallberg

Jarl G. Kallberg

New York University (NYU) - Department of Finance

Crocker H. Liu

Arizona State University

Paolo Pasquariello

University of Michigan, Stephen M. Ross School of Business

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Date Written: June 16, 2009

Abstract

This study addresses the recent performance of the U.S. residential real estate markets. We investigate the comovement among Case-Shiller Home Price Indices for 14 metropolitan areas between 1992 and 2008. We identify the portion of this comovement deemed as fundamental (excessive), which we define as the covariation that can (cannot) be attributed to common fundamental factors directly influencing real estate prices. We find that the degree of comovement in these markets increased over the sample period, most significantly so in the late 1990s, but that this increase is largely due to systematic sources of risk; the degree of excess comovement is a less important factor. Further analysis indicates that the dynamics of comovement among metropolitan U.S. residential real estate markets within the sample period are mostly attributable to underlying systematic real and financial factors, consistent with a greater fundamental integration of those markets. We discuss the implications of these results for the evolution of U.S. real estate prices over the last two decades and the ongoing credit crisis.

Keywords: Real Estate, Correlation, Contagion, Housing Bubble, Credit Crisis

JEL Classification: E30, R20

Suggested Citation

Kallberg, Jarl G. (Jerry) and Liu, Crocker H. and Pasquariello, Paolo, On the Price Comovement of U.S. Residential Real Estate Markets (June 16, 2009). Available at SSRN: https://ssrn.com/abstract=1095416 or http://dx.doi.org/10.2139/ssrn.1095416

Jarl G. (Jerry) Kallberg

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0339 (Phone)
212-995-4233 (Fax)

Crocker H. Liu

Arizona State University ( email )

W.P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-3259 (Phone)
480-965-8539 (Fax)

HOME PAGE: http://www.public.asu.edu/~chliu1

Paolo Pasquariello (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

709 Tappan Street
Room R4434
Ann Arbor, MI 48109
United States
734-764-9286 (Phone)
240-526-7168 (Fax)

HOME PAGE: http://webuser.bus.umich.edu/ppasquar/

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