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What Causes the Positive Price-Turnover Correlation in European Housing Markets?

Author

Listed:
  • Martijn I. Dröes

    (University of Amsterdam
    Amsterdam School of Real Estate
    Tinbergen Institute)

  • Marc K. Francke

    (University of Amsterdam
    Ortec Finance)

Abstract

This paper examines what determines the correlation between prices and turnover in European housing markets. Using a panel vector autoregressive model, we find that there is a particularly strong feedback mechanism between prices and turnover. Momentum effects are another important reason why prices and turnover are correlated. Common underlying factors, such as GDP and interest rates, also explain part of the price-turnover correlation. The results in this paper imply that, to understand price and turnover dynamics, it is important to model prices and turnover as two interdependent processes. There is a considerable bias in the coefficient estimates of standard house price models if this dependency is not explicitly taken into account.

Suggested Citation

  • Martijn I. Dröes & Marc K. Francke, 2018. "What Causes the Positive Price-Turnover Correlation in European Housing Markets?," The Journal of Real Estate Finance and Economics, Springer, vol. 57(4), pages 618-646, November.
    • Handle: RePEc:kap:jrefec:v:57:y:2018:i:4:d:10.1007_s11146-017-9602-7
    DOI: 10.1007/s11146-017-9602-7
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    3. Blanka ŠKRABIĆ PERIĆ & Ana RIMAC SMILJANIĆ & Petar SORIĆ, 2022. "Confidence vs. Uncertainty : An Explanation of Housing Prices In the Old EU Member States," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 31-45, October.

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    More about this item

    Keywords

    Price-turnover relationship; Feedback; Momentum effects; Credit constraints; Nominal loss aversion;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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