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Why Has House Price Dispersion Gone Up?

75 Pages Posted: 3 Nov 2008 Last revised: 25 Feb 2009

Stijn Van Nieuwerburgh

New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Pierre-Olivier Weill

University of California, Los Angeles; National Bureau of Economic Research (NBER)

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Date Written: February 5, 2009

Abstract

We set up and solve a spatial, dynamic equilibrium model of the housing market based on two main assumptions: households with heterogenous abilities flow in and out metropolitan areas in response to local wage shocks, and the housing supply cannot adjust instantly because of regulatory constraints. In our equilibrium, house prices compensate for cross-sectional productivity differences. We increase productivity dispersion in the calibrated model in order to match the 30-year increase in cross-sectional wage dispersion that we document based on metropolitan-level data. We show that the model quantitatively matches the observed 30-year increase in dispersion of house prices across U.S. metropolitan areas. It is consistent with several other features of the cross-sectional distribution of house prices and wages.

Suggested Citation

Van Nieuwerburgh, Stijn and Weill, Pierre-Olivier, Why Has House Price Dispersion Gone Up? (February 5, 2009). NYU Working Paper No. FIN-06-010. Available at SSRN: https://ssrn.com/abstract=1293642

Stijn Van Nieuwerburgh (Contact Author)

New York University Stern School of Business, Department of Finance ( email )

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New York, NY 10012-1126
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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Pierre-Olivier Weill

University of California, Los Angeles ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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