Are Housing Price Cycles Asymmetric? Evidence from the US States and Metropolitan Areas

This paper investigates asymmetry in US housing price cycles at the state and metropolitan statistical area (MSA) level, using the Triples test (Randles et al., 1980). Several reasons may account for asymmetry in housing prices, including non-linearity in their determinants and in behavioural responses, in particular linked to equity constraints and loss aversion. However, few studies have formally tested the symmetry of housing price cycles. Evidence of asymmetry at the 5% confidence level is found in nearly half of the states, 37% of the MSAs and in the aggregate national series. Geographical patterns and comparisons with results obtained by Cook (2006) for the United Kingdom suggest that asymmetric cycles tend to prevail in areas where housing supply elasticity is low. In addition, asymmetric cycles with steep downturns are found in several states of the Midwest, where the decline in traditional industries has severely hit the economy. These results call for considering potential non-linearity when analysing, modelling and forecasting housing prices.