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Hot and Cold Housing Markets: International Evidence

  • Ceron, Jose A.
  • Suarez, Javier

This paper examines the experience of 14 developed countries for which there are about 30 years of quarterly inflation-adjusted housing price data. Price dynamics is modelled as a combination of a country-specific component and a cyclical component. The cyclical component is a two-state Markov switching process with parameters common to all countries. We find that the latent cyclical variable captures previously undocumented changes in the volatility of real housing price increases. These volatility phases are quite persistent (about six years, on average) and occur with about the same unconditional frequency over time. In line with previous studies, the mean of real housing price increases can be predicted to be larger when lagged values of those increases are large, real GDP growth is high, unemployment falls, and interest rates are low or have declined. Our findings have important implications for risk management in regard to residential property markets.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5411.

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Date of creation: Jan 2006
Handle: RePEc:cpr:ceprdp:5411
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  1. Ortalo-Magné, François & Rady, Sven, 2005. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraint," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 50, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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  17. Jeremy C. Stein, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 379-406.
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