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Macroeconomic determinants of international housing markets

  • Adams, Zeno
  • Füss, Roland

This paper examines the long-term impact and short-term dynamics of macroeconomic variables on international housing prices. Since adequate housing market data are generally not available and usually of low frequency we apply a panel cointegration analysis consisting of 15 countries over a period of 30 years. Pooling the observations allows us to overcome the data restrictions which researchers face when testing long-term relationships among single real estate time series. This study does not only confirm results from previous studies, but also allows for a comparison of single country estimations in an integrated equilibrium framework. The empirical results indicate house prices to increase in the long-run by 0.6% in response to a 1% increase in economic activity while construction costs and the long-term interest rate show average long-term effects of approximately 0.6% and -0.3%, respectively. Contrary to current literature our estimates suggest only about 16% adjustment per year. Thus the time to full recovery may be much slower than previously stated, so that deviations from the long-term equilibrium result in a dynamic adjustment process that may take up to 14 years.

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Article provided by Elsevier in its journal Journal of Housing Economics.

Volume (Year): 19 (2010)
Issue (Month): 1 (March)
Pages: 38-50

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Handle: RePEc:eee:jhouse:v:19:y:2010:i:1:p:38-50
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