Risk and Structural Instability in US Housing Prices

Posted: 16 Feb 2013

See all articles by Michail Karoglou

Michail Karoglou

Aston University

Bruce Morley

University of Bath

Dennis A. Thomas

Aberystwyth University

Date Written: February 15, 2013


This paper employs a Component GARCH in Mean model to show that house prices across a number of major US cities between 1987 and 2009 have displayed asset market properties in terms of both risk-return relationships and asymmetric adjustment to shocks. In addition, tests for structural breaks in the mean and variance indicate structural instability across the data range. Multiple breaks are identified across all cities, particularly for the early 1990s and during the post-2007 financial crisis as housing has become an increasingly risky asset. Estimating the models over the individual sub-samples suggests that over the last twenty years the financial sector has increasingly failed to account for the levels of risk associated with real estate markets. This result has possible implications for the way in which financial institutions should be regulated in the future.

Keywords: house prices, risk, structural instability, CGARCH

Suggested Citation

Karoglou, Michail and Morley, Bruce and Thomas, Dennis A., Risk and Structural Instability in US Housing Prices (February 15, 2013). Journal of Real Estate Finance and Economics, Vol. 46, No. 3, 2013, Available at SSRN: https://ssrn.com/abstract=2218517

Michail Karoglou

Aston University ( email )

Aston Triangle
Birmingham, B4 7ET
United Kingdom

Bruce Morley (Contact Author)

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Dennis A. Thomas

Aberystwyth University ( email )

Aberystwyth, SY23 3DD
United Kingdom

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