The Role of Price Spillovers in the American Housing Boom

38 Pages Posted: 1 Dec 2015 Last revised: 30 Oct 2018

See all articles by Anthony DeFusco

Anthony DeFusco

Northwestern University - Kellogg School of Management

Wenjie Ding

University of Pennsylvania - The Wharton School

Fernando V. Ferreira

University of Pennsylvania - The Wharton School

Joseph Gyourko

University of Pennsylvania - Real Estate Department; National Bureau of Economic Research (NBER)

Date Written: September 5, 2018

Abstract

One of the striking features of the last U.S. housing boom was the heterogeneity in the timing of its onset across local markets. In this paper, we exploit this heterogeneity to estimate the extent to which the boom was spread via spatial spillovers from one market to another. Our analysis focuses on spillovers that occur around the time that a local market enters its boom, which we identify using sharp structural breaks in house price growth rates. On the extensive margin, there is evidence that the likelihood of a market booming increases substantially if nearby neighbors boom. On the intensive margin, we also find statistically significant but economically modest effects of the size of a neighbor’s boom on subsequent price growth in nearby markets. These affects appear to be unrelated to local market fundamentals, suggesting a potential role for non-rational factors.

Keywords: Price Spillovers, Housing Boom

Suggested Citation

DeFusco, Anthony and Ding, Wenjie and Ferreira, Fernando V. and Gyourko, Joseph E., The Role of Price Spillovers in the American Housing Boom (September 5, 2018). Available at SSRN: https://ssrn.com/abstract=2696695 or http://dx.doi.org/10.2139/ssrn.2696695

Anthony DeFusco (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2211 Campus Drive
Evanston, IL 60208
United States

HOME PAGE: http://www.anthonydefusco.com

Wenjie Ding

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Fernando V. Ferreira

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7181 (Phone)
215-573-2220 (Fax)

HOME PAGE: http://real.wharton.upenn.edu/~fferreir/

Joseph E. Gyourko

University of Pennsylvania - Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States
215-898-3003 (Phone)
215-573-2220 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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