House Price Cycles: A Tale of Two Countries

40 Pages Posted: 21 Oct 2009 Last revised: 3 Nov 2009

See all articles by Man Cho

Man Cho

KDI School of Public Policy and Management

Date Written: September 24, 2009


This study compares recent home price dynamics of two countries, Korea and the U.S., in terms of underlying determinants of price variations, over time and across locations, along with dynamic adjustment patterns of disequilibrating price shocks. In particular, 2-stage error correction models (2S-ECM) are fitted by using city-level panel data sets from both countries, covering the recent boom-busts. Three empirical findings are worth noting. First, while the income variables are fairly stable in their price effects in both countries, across different model specifications and across different time periods, there has been a regime shift in Korea in that the user cost for owning greatly increases its explanatory power in Korea after the 1997-1998 financial crisis. Second, unlike the recent upsurge in the U.S., an over-valuation of similar magnitude is not observed in Korea. Third, the speed of reverting to long-term equilibrium price level is shown to be faster in Korea. With further investigation due, this outcome may reflect the aggressive policy stance of the Korean government in maintaining the stability in home price movement. Using the empirical evidences at hand, several policy issues are discussed.

Keywords: house price cycles, serial correlation, mean reversion, housing policy

Suggested Citation

Cho, Man, House Price Cycles: A Tale of Two Countries (September 24, 2009). KDI School of Pub Policy & Management Paper No. 09-10, Available at SSRN: or

Man Cho (Contact Author)

KDI School of Public Policy and Management ( email )

87 Hoegiro
Seoul, 130-868

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