Determinants of Real House Price Dynamics

35 Pages Posted: 11 Oct 2002

See all articles by Dennis R. Capozza

Dennis R. Capozza

Ross School of Business, University of Michigan

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Charlotte Mack

University of Michigan at Ann Arbor

Christopher J. Mayer

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: October 2002

Abstract

We explore the dynamics of real house prices by estimating serial correlation and mean reversion coefficients from a panel data set of 62 metro areas from 1979-1995. The serial correlation and reversion parameters are then shown to vary cross sectionally with city size, real income growth, population growth, and real construction costs. Serial correlation is higher in metro areas with higher real income, population growth and real construction costs. Mean reversion is greater in large metro areas and faster-growing cities with lower construction costs. Empirically, substantial overshooting of prices can occur in high real construction cost areas, which have high serial correlation and low mean reversion, such as the coastal cities of Boston, New York, San Francisco, Los Angeles and San Diego.

Suggested Citation

Capozza, Dennis R. and Hendershott, Patric H. and Mack, Charlotte and Mayer, Christopher J., Determinants of Real House Price Dynamics (October 2002). NBER Working Paper No. w9262. Available at SSRN: https://ssrn.com/abstract=338869

Dennis R. Capozza

Ross School of Business, University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734 995 7271 (Phone)
734 629-0635 (Fax)

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Charlotte Mack

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Christopher J. Mayer

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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