Regional composition of national house price cycles in the US

House price cycles may have considerable macroeconomic effects even if they evolve heterogeneously across local markets. In this paper, we use a panel Markov-switching model allowing for time-varying volatility to jointly analyze national- and state-level house price regimes for the US over the period 1976 to 2017. Our approach identifies three house price regimes endogenously, namely, a nationwide boom regime, a spatially limited bust regime and a nationwide bust regime. The spatially limited bust regime occurs in the coastal states where, compared to other states, the population density is high and the unemployment rate, the housing density as well as the land supply elasticity are low. This spatially limited bust regime usually follows a nationwide house price boom. Hence, house price movements in the coastal states usually determine the nationwide cycle in the US. Moreover, boom and bust cycles are accompanied by an exaggeration of house price increases during the boom in this group of states. In contrast, a bubble in the housing market occurred in almost all states prior to the Great Recession. This is one explanation for the severity of the Great Recession.