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Housing Prices and Fundamentals: The Role of a Supply Shifter

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  • Nazif Durmaz

    ()
    (Stetson University)

Abstract

The present paper empirically investigates the cointegrating relation between housing prices and economic fundamental variables in the US housing market. Employing simple yet rigorous econometric techniques, the present paper finds strong evidence in favor of cointegrating relations in most US states when both demand and supply side fundamental variables are included in the cointegrating regression. This result casts doubt on previous empirical work that reports a lack of cointegrating relations of housing prices with mostly demand-side fundamental variables. The previous literature may suffer a misspecification problem. Further, the present cointegrating vector estimates seem consistent with economic theory only when both demand and supply variables are included.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P221.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 3 ()
Pages: 2468-2479

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Handle: RePEc:ebl:ecbull:eb-11-00314

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Keywords: Housing prices; cointegration;

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References

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  1. Sean Holly & M. Hashem Pesaran & Takashi Yamagata, 2006. "A Spatio-Temporal Model of House Prices in the US," CESifo Working Paper Series 1826, CESifo Group Munich.
  2. Malpezzi, Stephen & Maclennan, Duncan, 2001. "The Long-Run Price Elasticity of Supply of New Residential Construction in the United States and the United Kingdom," Journal of Housing Economics, Elsevier, vol. 10(3), pages 278-306, September.
  3. Mikhed, Vyacheslav & ZemcĂ­k, Petr, 2009. "Do house prices reflect fundamentals? Aggregate and panel data evidence," Journal of Housing Economics, Elsevier, vol. 18(2), pages 140-149, June.
  4. Malpezzi, Stephen, 1999. "A Simple Error Correction Model of House Prices," Journal of Housing Economics, Elsevier, vol. 8(1), pages 27-62, March.
  5. Meen, Geoffrey, 2002. "The Time-Series Behavior of House Prices: A Transatlantic Divide?," Journal of Housing Economics, Elsevier, vol. 11(1), pages 1-23, March.
  6. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  7. Topel, Robert H & Rosen, Sherwin, 1988. "Housing Investment in the United States," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 718-40, August.
  8. Dennis R. Capozza & Patric H. Hendershott & Charlotte Mack & Christopher J. Mayer, 2002. "Determinants of Real House Price Dynamics," NBER Working Papers 9262, National Bureau of Economic Research, Inc.
  9. Zephyr, 2010. "The city," City, Taylor & Francis Journals, vol. 14(1-2), pages 154-155, February.
  10. Park, Joon Y, 1992. "Canonical Cointegrating Regressions," Econometrica, Econometric Society, vol. 60(1), pages 119-43, January.
  11. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  13. Banerjee, Anindya, 1999. " Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 607-29, Special I.
  14. Jakob B Madsen, 2011. "A q Model of House Prices," Development Research Unit Working Paper Series 03-11, Monash University, Department of Economics.
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Cited by:
  1. Orhan Erdem & Hande Oruc & Yusuf Varli, 2013. "Housing Market and Macroeconomic Fundamentals," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 13(51), pages 58-81, April.
  2. Mustafa Akan, 2013. "A Dynamic Model of Pension Fund Companies," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 13(51), pages 1-20, April.
  3. Baris Teke, 2013. "Effects of a Change in the Composition of IMKB 30 on Stock Performance," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 13(51), pages 21-57, April.

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