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Permanent and transitory shocks in owner-occupied housing: A common trend model of price dynamics

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  • Yang, Zan
  • Wang, S.T.

Abstract

Significant fluctuations in house prices have received considerable attention in recent years. An understanding of the forces underlying the departure from fundamental values is important in explaining the mechanisms underlying housing market performance and predicting potential house price changes in the future. This study constitutes the first use of a common trend (CT) model to analyze private house prices in the Swedish market. We employ a cointegration system to analyze the macro variables of consumption expenditure per capita, user costs and house prices. We decompose shocks into those resulting from fundamental variables, specified in this research as income and the interest rate, and those resulting from cyclical variables. The results indicate that interest rates play a dominant role in explaining house price swings, and are also significant in determining user costs for households in Sweden. Transitory shocks are found to have little explanatory power for house prices and user costs in the long run. A number of tests have been performed to verify the robustness of the specification and results.

Suggested Citation

  • Yang, Zan & Wang, S.T., 2012. "Permanent and transitory shocks in owner-occupied housing: A common trend model of price dynamics," Journal of Housing Economics, Elsevier, vol. 21(4), pages 336-346.
  • Handle: RePEc:eee:jhouse:v:21:y:2012:i:4:p:336-346
    DOI: 10.1016/j.jhe.2012.08.001
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    References listed on IDEAS

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    Cited by:

    1. Theodore Panagiotidis & Panagiotis Printzis, 2016. "On the macroeconomic determinants of the housing market in Greece: a VECM approach," International Economics and Economic Policy, Springer, vol. 13(3), pages 387-409, July.
    2. Benedetto Manganelli & Francesco Tajani, 2015. "Macroeconomic Variables and Real Estate in Italy and in the usa," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2015(3), pages 31-48.

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