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Housing market cycles and duration dependence in the United States and Canada

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  • Rose Cunningham
  • Ilan Kolet
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    Abstract

    Housing wealth is a large component of households' total wealth and plays an important role in aggregate business cycles. In this article, we explore data on real house price cycles at the aggregate level and city level for the US and Canada. Using a panel of 137 cities, we examine the duration and characteristics of housing market cycles in North America. We find that North American housing cycles are long, averaging 5 years of expansion and 4 years of contraction. We estimate a discrete time survival model with a probit specification for house price expansions and contractions. This model allows us to test for duration dependence. We find that US housing market expansions have positive duration dependence since their exit probabilities increase with duration, while contractions seem to have no duration dependence. Canadian house price cycles did not exhibit duration dependence. Standard determinants of house prices (interest rates, income and population growth) are included as controls.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 43 (2011)
    Issue (Month): 5 ()
    Pages: 569-586

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    Handle: RePEc:taf:applec:v:43:y:2011:i:5:p:569-586

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    Cited by:
    1. Castroa, Vitor & Kubota, Megumi, 2013. "Duration dependence and change-points in the likelihood of credit booms ending," Policy Research Working Paper Series 6475, The World Bank.
    2. Agustin Benetrix & Barry Eichengreen & Kevin H. O'Rourke, 2011. "How Housing Slumps End," The Institute for International Integration Studies Discussion Paper Series iiisdp384, IIIS.
    3. Philippe Bracke, 2011. "How Long Do Housing Cycles Last? a Duration Analysis for 19 OECD Countries," IMF Working Papers 11/231, International Monetary Fund.

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