National and Regional Housing Vacancy: Insights Using Markov-Switching Models

44 Pages Posted: 18 Jul 2018 Last revised: 21 Oct 2019

See all articles by Jeffrey Cohen

Jeffrey Cohen

University of Connecticut - School of Business

Cletus C. Coughlin

Federal Reserve Bank of St. Louis - Research Division

Jonas Crews

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Date Written: 2018-05-11

Abstract

We examine homeowner vacancy rates over time and space using Markov-switching models. Our theoretical analysis extends the Wheaton (1990) search and matching model for housing by incorporating regime-switching behavior and interregional spillovers. Our approach is strongly supported by our empirical results. Estimations, using constant-only as well as Vector Autoregressions, allow us to examine differences in vacancy rates as well as explore the possibility of asymmetries within and across housing markets, depending on the state/regime (e.g., low or high vacancy) of a given housing market. Estimated vacancy rates, conditional on the vacancy regime, which are found to be persistent, vary across regions in all Markov-Switching Vector Autoregression (MS-VAR) models. Models allowing for interregional effects via lagged vacancy rates and controls relating to migration tend to perform better than models lacking this feature. These models track vacancies well. Noteworthy is their performance during the Great Recession/Financial Crisis. The importance and diversity of interregional effects are demonstrated, and vacancies in a specific Census region are affected by vacancies in other regions. Moreover, the sizes of these effects depend on the vacancy state of the specific region.

Keywords: housing vacancy, Markov switching, search and matching, interregional spillovers, Vector Autoregressions

JEL Classification: C24, R11, R31

Suggested Citation

Cohen, Jeffrey and Coughlin, Cletus C. and Crews, Jonas, National and Regional Housing Vacancy: Insights Using Markov-Switching Models (2018-05-11). FRB St. Louis Working Paper No. 2018-7. Available at SSRN: https://ssrn.com/abstract=3213815 or http://dx.doi.org/10.20955/wp.2018.007

Jeffrey Cohen (Contact Author)

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

Cletus C. Coughlin

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

Jonas Crews

Federal Reserve Banks - Federal Reserve Bank of St. Louis

411 Locust St
Saint Louis, MO 63011
United States

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