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Local market and national components in house price appreciation


  • Joseph Gyourko
  • Richard Voith


We analyze real home price appreciation using a long time series (1971-1989) and large cross section (56 metro areas). Our findings yield important new insights into two outstanding issues in real estate finance an economics. The first deals with the implications for investment opportunities in housing across metro areas. A striking result is that we cannot reject the null hypothesis of equal appreciation rates across locales. A priori, the results are suggestive of equal expected appreciation across the different local markets. However, it is noteworthy that we find significant serial correlation in some local appreciation series. This is consistent with previous findings by Case and Shiller (1989), and suggests that prescient market timers might have been able to make money in selective markets. We then consider the potential implication of equal appreciation rates across cities for housing market equilibrium in light of the fact that price levels do materially differ across metro areas. We argue that equal real appreciation rates starting from different price levels imply increasingly divergent prices of local traits in terms of foregone consumption. Without special assumptions with respect to income and productivity differentials across locations or to local trait income elasticities of demand, the appreciation rates in high housing price level areas ultimately have to fall below those in low price level areas. Preliminary evidence indicates that higher priced areas tend to have significantly lower appreciation rates (controlling for local fixed effects and a common, time-varying effect).
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Suggested Citation

  • Joseph Gyourko & Richard Voith, 1990. "Local market and national components in house price appreciation," Working Papers 90-10, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:90-10

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    Cited by:

    1. Gatzlaff, Dean H. & Haurin, Donald R., 1998. "Sample Selection and Biases in Local House Value Indices," Journal of Urban Economics, Elsevier, vol. 43(2), pages 199-222, March.
    2. Ghysels, Eric & Plazzi, Alberto & Valkanov, Rossen & Torous, Walter, 2013. "Forecasting Real Estate Prices," Handbook of Economic Forecasting, Elsevier.
    3. Rena Sivitanidou, 1999. "Office Rent Processes: The Case of U.S. Metropolitan Markets," Working Paper 8664, USC Lusk Center for Real Estate.
    4. repec:fgv:eaespw:01 is not listed on IDEAS
    5. Malpezzi, Stephen, 1999. "A Simple Error Correction Model of House Prices," Journal of Housing Economics, Elsevier, vol. 8(1), pages 27-62, March.
    6. Roberta Capello, 2001. "Rendita fondiaria e dinamica urbana: le determinanti dello sviluppo urbano nel caso italiano," Rivista di Politica Economica, SIPI Spa, vol. 91(1), pages 75-118, January.
    7. David E. Frame, 2008. "Regional Migration and House Price Appreciation," International Real Estate Review, Asian Real Estate Society, vol. 11(1), pages 96-112.

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    Housing - Prices;


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