Local House Price Diffusion

40 Pages Posted: 9 Dec 2016 Last revised: 8 Jul 2017

See all articles by Jeffrey Cohen

Jeffrey Cohen

University of Connecticut - School of Business

Jeffrey E. Zabel

Tufts University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 7, 2017

Abstract

An understanding of the temporal and spatial diffusion processes of local house prices, at different levels of aggregation, can help policymakers and homeowners anticipate the impacts of shocks. To this end, this paper investigates house price diffusion over time and space at the CBSA-level (nationwide), town-level and census tract-level (in the Greater Boston Area). One contribution of our analysis is our focus on diffusion effects at these different levels of aggregation. We estimate fixed effects models of growth rates on lagged growth rates (persistence effects), lagged growth rates from nearby jurisdictions (spillover effects) and growth rates in fundamentals. The estimated persistence and spillover effects are positive and significant at the CBSA-level. We find large ripple (contagion) effects that may have contributed to the recent housing downturn that reached the national-level. When estimating town-level diffusion, we find little evidence of persistence or spillover effects. Hence price diffusion appears to be stronger across than within housing markets. Both fundamentals and the price expectations appear to be the drivers of price diffusion which leaves room for housing bubbles based on households’ over-optimism about future house prices.

Keywords: House Price Diffusion; Spillover Effects

JEL Classification: R31

Suggested Citation

Cohen, Jeffrey and Zabel, Jeffrey E., Local House Price Diffusion (July 7, 2017). Available at SSRN: https://ssrn.com/abstract=2882356 or http://dx.doi.org/10.2139/ssrn.2882356

Jeffrey Cohen

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

Jeffrey E. Zabel (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-2318 (Phone)
617-627-3917 (Fax)

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