Exploring Metropolitan Housing Price Volatility
37 Pages Posted: 16 Dec 2003
Date Written: November 2003
This paper investigates dynamic interrelations between the volatility of single-family home appreciation and the rate of home value appreciation, personal income, population, unemployment rate, and GMP at the metropolitan level, using a large quarterly data set that covers 316 metropolises in the United States from 1978 to 2002. We use a novel three-step approach that allows for time-dependent expected home appreciation rates while controlling for unobserved metropolitan attributes and macro factors. We find that the appreciation volatility can be explained based on past home appreciation rate and volatility, exogenous shocks to the housing market, and population growth. The volatility affects expected future home value appreciation, as well as the growth rates of personal income and population. Last we find evidence that constrained housing supplies in more populated metropolises influence appreciation rates and volatility.
Keywords: home value appreciation, housing price volatility, metropolitan economy, panel VAR
JEL Classification: C52, G10, R21, R31
Suggested Citation: Suggested Citation