Price-Volume Correlation in the Housing Market: Causality and Co-Movements

Posted: 26 Sep 2009

See all articles by Jim Clayton

Jim Clayton

University of Connecticut School of Business; Cornerstone Real Estate Advisers

Liang Peng

Smeal College of Business, The Pennsylvania State University

Norman G. Miller

University of San Diego - Real Estate Institute

Multiple version iconThere are 2 versions of this paper

Date Written: September 23, 2009

Abstract

Housing market cycles are featured by a positive correlation of prices and trading volume, which is conventionally attributed to a causal relationship between prices and volume. This paper analyzes the housing markets in 114 metropolitan statistical areas in the United States from 1990 to 2002, treats both prices and volume as endogenous variables, and studies whether and how exogenous shocks cause co-movements of prices and volume. At quarterly frequency, we find that, first, both home prices and trading volume are affected by conditions in labor markets, the mortgage market, and the stock market, and the effects differ between markets with low and high supply elasticity. Second, home price Granger cause trading volume, but the effects are asymmetric - decreases in prices reduce trading volume, and increases in prices have no effect. Third, trading volume also Granger causes home prices, but only in markets with elastic supply. Finally, we find a statistically significant positive price-volume correlation; which, however, is mainly explained by co-movements of prices and volume caused by exogenous shocks, instead of the Granger causality between prices and volume.

Keywords: housing market, price volume correlation, Granger causality

JEL Classification: E32, G14

Suggested Citation

Clayton, James F. and Peng, Liang and Miller, Norman G., Price-Volume Correlation in the Housing Market: Causality and Co-Movements (September 23, 2009). Journal of Real Estate Finance and Economics, Vol. 40, No. 1, 2010. Available at SSRN: https://ssrn.com/abstract=1477547

James F. Clayton

University of Connecticut School of Business ( email )

Storrs, CT

Cornerstone Real Estate Advisers ( email )

One Financial Plaza, Suite 1700
Hartford, CT 06103
United States

Liang Peng (Contact Author)

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

University Park
State College, PA 16802
United States

Norman G. Miller

University of San Diego - Real Estate Institute ( email )

San Diego, CA
United States

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