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Heterogeneity in House Price Dynamics

23 Pages Posted: 8 Aug 2017  

Gabriele Galati

De Nederlandsche Bank

Federica Teppa

De Nederlandsche Bank

Multiple version iconThere are 2 versions of this paper

Date Written: July 26, 2017

Abstract

We study the extent to which house price dynamics differ across market segments and possible drivers of this heterogeneity. We construct a data set for individual houses and mortgages, based on a survey of about 500 Dutch households conducted over the period 2003-2016. We estimate a dynamic panel data model of house price dynamics by means of the Arellano-Bond estimator. Three main empirical results emerge. First, we generally find that house price dynamics imply a convergence towards their long-run equilibrium value, as indicated by a low serial correlation coefficient and a positive estimated mean reversion coefficient. Second, there is evidence that the housing market in the Netherlands is inefficient. Third, there is important heterogeneity across different market segments, with some markets being more “cyclical” than others. In particular, the speed of convergence of house price dynamics and the efficiency of housing markets depends on the geographical location, the degree of urbanization, and the type and year of construction of a house. We do not find evidence of significant heterogeneity across different types of mortgage financing and households’ income.

Keywords: Housing Market Dynamics, House Prices, Heterogeneity, Survey Data, Panel Analysis

JEL Classification: D14, G12, R32

Suggested Citation

Galati, Gabriele and Teppa, Federica, Heterogeneity in House Price Dynamics (July 26, 2017). De Nederlandsche Bank Working Paper No. 564. Available at SSRN: https://ssrn.com/abstract=3014766

Gabriele Galati (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Federica Teppa

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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