Negative House Price Co-Movements and US Recessions

45 Pages Posted: 14 Jun 2017 Last revised: 23 May 2019

See all articles by Charlotte Christiansen

Charlotte Christiansen

Aarhus University - CREATES

Jonas N. Eriksen

Aarhus University and CREATES

Stig Vinther Møller

Aarhus University - CREATES

Date Written: May 21, 2019

Abstract

We investigate the relation between large negative house price co-movements in the cross-section of US cities and the national business cycle. The occurrences of large negative house price co-movements across cities cluster over time and these clusters are closely linked to NBER recession dates. A simple co-movement measure that aggregates large negative city-level house price returns reliably predicts future recession periods. Weighting cities according to population or GDP when constructing the negative co-movement variable yields the largest forecasting power, indicating that larger cities that contribute more to the national GDP are more influential in terms of correctly signaling future recessions. Moreover, large negative house price co-movements contribute above and beyond traditional recession predictors, suggesting an important role for city-level housing information as an early warning indicator.

Keywords: Housing, business cycles, negative returns, co-movements

JEL Classification: E32, E44, G01, R10, R30

Suggested Citation

Christiansen, Charlotte and Eriksen, Jonas Nygaard and Møller, Stig Vinther, Negative House Price Co-Movements and US Recessions (May 21, 2019). Available at SSRN: https://ssrn.com/abstract=2986294 or http://dx.doi.org/10.2139/ssrn.2986294

Charlotte Christiansen (Contact Author)

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus V, DK 8210
Denmark

Jonas Nygaard Eriksen

Aarhus University and CREATES ( email )

Fuglesangs Alle 4
Aarhus V, 8210
Denmark

Stig Vinther Møller

Aarhus University - CREATES ( email )

Nordre Ringgade 1
Aarhus, DK-8000
Denmark

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