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What Goes Up Must Come Down? House Price Dynamics in the United States

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Author Info

  • Vladimir Klyuev

Abstract

This paper estimates the evolution of equilibrium real home prices in the United States and finds that despite recent declines, single-family homes remained 8 to 20 percent overvalued as of the first quarter of 2008. In the short run, the gap between actual and equilibrium prices does not exert powerful influence over price dynamics. Instead, that dynamics is driven by the inventory-to-sales ratio and by foreclosure starts in a highly inertial relationship. Taken together, this implies that price declines are likely to continue, including past the point where overvaluation is eliminated. The paper also finds that from the early 1990s onwards changes in regional home prices have been more synchronized than before, and that the recent movements in the average price index have reflected a nationwide housing boom, followed by a nationwide housing bust.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/187.

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Length: 29
Date of creation: 01 Jul 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/187

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Related research

Keywords: Housing prices; home price; mortgage; equation; equations; foreclosure; mortgage rate; estimation period; foreclosures; standard errors; cointegration; statistic; mortgages; housing markets; statistics; standard deviation; probability; mortgage rates; homeownership; standard error; supply equation; estimation technique; statistical significance; home ownership; housing economics; mortgage finance; covariance; mortgage lenders; statistical tests; mortgage debt; conventional mortgage; constant term; mortgage bankers; housing supply; samples; standard deviations; foreclosure process; traditional mortgages; predictions; fixed rate mortgage;

References

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  1. Calvin Schnure, 2005. "Boom-Bust Cycles in Housing," IMF Working Papers 05/200, International Monetary Fund.
  2. Stephen Malpezzi, 1998. "A Simple Error Correction Model of House Prices," Wisconsin-Madison CULER working papers 98-11, University of Wisconsin Center for Urban Land Economic Research.
  3. Joshua Gallin, 2006. "The Long-Run Relationship between House Prices and Income: Evidence from Local Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(3), pages 417-438, 09.
  4. 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.
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Citations

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Cited by:
  1. Luis M. Cubeddu & Camilo Ernesto Tovar Mora & Evridiki Tsounta, 2012. "Latin America," IMF Working Papers 12/193, International Monetary Fund.
  2. Hiebert, Paul & Vansteenkiste, Isabel, 2009. "Do house price developments spill over across euro area countries? Evidence from a Global VAR," Working Paper Series 1026, European Central Bank.
  3. Conefrey, Thomas & Whelan, Karl, 2012. "Supply, Demand and Prices in the US Housing Market," Research Technical Papers 08/RT/12, Central Bank of Ireland.
  4. Vansteenkiste, Isabel & Hiebert, Paul, 2011. "Do house price developments spillover across euro area countries? Evidence from a global VAR," Journal of Housing Economics, Elsevier, vol. 20(4), pages 299-314.
  5. Pan, Huiran & Wang, Chun, 2013. "House prices, bank instability, and economic growth: Evidence from the threshold model," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1720-1732.
  6. Chan Lily & Ng Heng Tiong & Rishi Ramchand, 2012. "A cluster analysis approach to examining Singapore’s property market," BIS Papers chapters, in: Bank for International Settlements (ed.), Property markets and financial stability, volume 64, pages 43-53 Bank for International Settlements.
  7. P. Arestis & A.R. González, 2014. "Modelling the housing market in OECD countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(2), pages 131-153, March.
  8. Gerdesmeier, Dieter & Lenarčič, Andreja & Roffia, Barbara, 2012. "An alternative method for identifying booms and busts in the euro area housing market," Working Paper Series 1493, European Central Bank.
  9. Alessio Ciarlone, 2012. "House price cycles in emerging economies," Temi di discussione (Economic working papers) 863, Bank of Italy, Economic Research and International Relations Area.
  10. Evridiki Tsounta, 2009. "Is the Canadian Housing Market Overvalued? A+L4242 Post-Crisis Assessment," IMF Working Papers 09/235, International Monetary Fund.
  11. Deniz Igan & Prakash Loungani, 2012. "Global Housing Cycles," IMF Working Papers 12/217, International Monetary Fund.

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