House Prices and Economic Growth

Posted: 4 Jul 2009

See all articles by Norman G. Miller

Norman G. Miller

University of San Diego - Real Estate Institute

Liang Peng

Smeal College of Business, The Pennsylvania State University

Michael Sklarz

Collateral Analytics

Multiple version iconThere are 2 versions of this paper

Date Written: June 29, 2009


Using quarterly data for all 379 metropolitan statistic areas (MSAs) in the U.S. from 1980:1 to 2008:2, this paper empirically studies the effect of house prices on local Gross Metropolitan Product (GMP). We compare the effects of predictable and unpredictable house price changes, which we use to capture the collateral and wealth effects of house prices respectively. We further analyze the relationship between the effects and household borrowing constraints, as well as the temporal pattern of the effects. Our analysis provides the following findings. First, house price changes have significant effects on GMP growth, and the effect of predictable changes (the collateral effect) is about three times stronger than the effect of unpredictable changes (the wealth effect). Second, the persistent component of predictable changes has a stronger collateral effect than the novel component. Third, when households are more financially constrained, the collateral effect is stronger, the wealth effect is weaker, and the total effect remains unchanged. Finally, the effects last for eight quarters, and peak on the fourth quarter after house price changes take place.

Keywords: Economic growth, House prices, Wealth effect, Collateral effect, Common correlated effects estimators, Long horizon predictability

JEL Classification: E23, E24, R11

Suggested Citation

Miller, Norman G. and Peng, Liang and Sklarz, Michael, House Prices and Economic Growth (June 29, 2009). Journal of Real Estate Finance and Economics, Forthcoming, Available at SSRN:

Norman G. Miller

University of San Diego - Real Estate Institute ( email )

San Diego, CA
United States

Liang Peng (Contact Author)

Smeal College of Business, The Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

Michael Sklarz

Collateral Analytics ( email )

United States

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