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What Goes Up Must Come Down? House Price Dynamics in the United States

  • Vladimir Klyuev

This paper estimates the evolution of equilibrium real home prices in the United States and finds that despite recent declines, single-family homes remained 8 to 20 percent overvalued as of the first quarter of 2008. In the short run, the gap between actual and equilibrium prices does not exert powerful influence over price dynamics. Instead, that dynamics is driven by the inventory-to-sales ratio and by foreclosure starts in a highly inertial relationship. Taken together, this implies that price declines are likely to continue, including past the point where overvaluation is eliminated. The paper also finds that from the early 1990s onwards changes in regional home prices have been more synchronized than before, and that the recent movements in the average price index have reflected a nationwide housing boom, followed by a nationwide housing bust.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/187.

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Length: 29
Date of creation: 01 Jul 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/187
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  1. Stephen Malpezzi, 1998. "A Simple Error Correction Model of House Prices," Wisconsin-Madison CULER working papers 98-11, University of Wisconsin Center for Urban Land Economic Research.
  2. Calvin Schnure, 2005. "Boom-Bust Cycles in Housing; The Changing Role of Financial Structure," IMF Working Papers 05/200, International Monetary Fund.
  3. Joshua Gallin, 2006. "The Long-Run Relationship between House Prices and Income: Evidence from Local Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(3), pages 417-438, 09.
  4. Capozza, Dennis R. & Mack, Charlotte & Hendershott, Patric H. & Mayer, Christopher J., 2002. "The Determinants of House Price Dynamics," ERES eres2002_106, European Real Estate Society (ERES).
  5. Dennis R. Capozza & Patric H. Hendershott & Charlotte Mack & Christopher J. Mayer, 2002. "Determinants of Real House Price Dynamics," NBER Working Papers 9262, National Bureau of Economic Research, Inc.
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