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House price dynamics and their reaction to macroeconomic changes

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  • Nneji, Ogonna
  • Brooks, Chris
  • Ward, Charles W.R.

Abstract

This article applies a three-regime Markov switching model to investigate the impact of the macroeconomy on the dynamics of the residential real estate market in the US. Focusing on the period between 1960 and 2011, the methodology implemented allows for a clearer understanding of the drivers of the real estate market in “boom”, “steady-state” and “crash” regimes. Our results show that the sensitivity of the real estate market to economic changes is regime-dependent. The paper then proceeds to examine whether policymakers are able to influence a regime switch away from the crash regime. We find that a decrease in interest rate spreads could be an effective catalyst to precipitate such a change of state.

Suggested Citation

  • Nneji, Ogonna & Brooks, Chris & Ward, Charles W.R., 2013. "House price dynamics and their reaction to macroeconomic changes," Economic Modelling, Elsevier, vol. 32(C), pages 172-178.
    • Handle: RePEc:eee:ecmode:v:32:y:2013:i:c:p:172-178
    DOI: 10.1016/j.econmod.2013.02.007
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    More about this item

    Keywords

    House prices; Monetary policy; Markov switching model; Macroeconomic drivers;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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