U.S. House Prices Over the Last 30 Years: Bubbles, Regime Shifts and Market (In)Efficiency

48 Pages Posted: 22 Nov 2014 Last revised: 25 Mar 2015

See all articles by Rose Neng Lai

Rose Neng Lai

University of Macau

Robert A. Van Order

George Washington University

Multiple version iconThere are 2 versions of this paper

Date Written: March 2015

Abstract

This paper studies the evolution of U.S. house prices across 45 metropolitan areas from 1980-2012. It uses a version of the Gordon dividend discount model, modelling price as present value of imputed rents as a measure of "fundamentals." This allows for a parsimonious specification, using only lagged rents, property values and interest rates (real and nominal) to explain property values. We find that cities share long run fundamentals, but adjust to them slowly at a rate of around 10% per year, which is relatively constant across cities. However we also find sharp differences in short run adjustments across cities, which are correlated with local supply elasticities. Analysis of residuals suggests strong cyclical deviations from fundamentals throughout the period, with a high degree of serial correlation. The bubble period (2000-2007) was longer than usual and appears to have been extended after 2002, when it was dying out, in a way that is coincident with the rise in subprime securitization.

Keywords: Housing Bubbles; Pooled Mean Group Estimation; Supply Elasticities

JEL Classification: C23, R31

Suggested Citation

Lai, Rose Neng and Van Order, Robert A., U.S. House Prices Over the Last 30 Years: Bubbles, Regime Shifts and Market (In)Efficiency (March 2015). Available at SSRN: https://ssrn.com/abstract=2528981 or http://dx.doi.org/10.2139/ssrn.2528981

Rose Neng Lai (Contact Author)

University of Macau ( email )

Av. Da Universidade, Taipa
Macau, Nil
Macau

Robert A. Van Order

George Washington University ( email )

2121 I Street NW
Washington, DC 20052
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
70
Abstract Views
417
rank
349,283
PlumX Metrics