International Housing Markets Co-Movements

Abstract

We examine house price co-movements within and cross four major economic blocks: North America, Europe, Oceania and the Far East. The purpose of this study is to establish: (1) Whether there was increased house price correlation within a given economic block or across different blocks in the past 10 years (perhaps as a result of capital market integration); (2) Whether there was excess correlation between some global cities, say, London and New York; and (3) The relative importance of volatility driver in different housing markets. The investigation is based on city-level data whenever possible, as conventional wisdom suggests that housing markets are geographically segmented. The study has implications for a growing class of affluent individuals seeking to diversify their international real estate holdings, as well as for mortgage lenders and policy makers.

Keywords: Excess correlation, risk diversification, volatility driver, common factor

JEL Classification: C38, C58, R31