House Price Growth Interdependencies and Comovement

30 Pages Posted: 18 Oct 2019 Last revised: 2 Mar 2020

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

Daniel Soques

University of North Carolina (UNC) at Wilmington

Date Written: 2019-09-25

Abstract

This paper examines house price diffusion across metropolitan areas in the United States. We develop a generalization of the Hamilton and Owyang (2012) Markov-switching model, where we incorporate direct regional spillovers using a spatial weighting matrix. The Markov-switching framework allows consideration for house price movements that occur due to similar timing of downturns across MSAs. The inclusion of the spatial weighting matrix improves fit compared to a standard endogenous clustering model. We find seven clusters of MSAs that experience idiosyncratic recessions plus one distinct national house price cycle. Notably only the housing downturn associated with the Great Recession spread across all of the MSAs in our sample; other house price downturns remained contained to a single cluster. Previous research has found that housing cycles and business cycles are intertwined. To examine this potential relationship we apply our spatial Markov-switching model to employment growth data. We find that house price comovement and employment comovement are distinct across cities.

Keywords: housing cycles, Markov-switching, cluster analysis

JEL Classification: C31, C38, R30

Suggested Citation

Cohen, Jeffrey and Coughlin, Cletus C. and Soques, Daniel, House Price Growth Interdependencies and Comovement (2019-09-25). FRB St. Louis Working Paper No. 2019-28, Available at SSRN: https://ssrn.com/abstract=3471800 or http://dx.doi.org/10.20955/wp.2019.028

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

Daniel Soques

University of North Carolina (UNC) at Wilmington ( email )

601 South College Road
Wilmington, NC 28403
United States

HOME PAGE: http://people.uncw.edu/soquesd/index.html

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