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A Nationwide or Localized Housing Crisis? Evidence from Structural Instability in US Housing Price and Volume Cycles

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Abstract

This study provides fresh implications for the puzzle of the recent housing boom-bust cycle in the United States. It extracts housing factors from housing price and volume time series at state and regional levels under a dynamic factor model, which considers three varieties of structural instability in local housing markets. The findings suggest that state-level housing price cycles are more unstable than housing volume cycles, and the probability of rejecting stability for the Northeast is the highest among four regional housing markets. In general, the housing market forecasts based on 1988–2012 full-sample factors and time-varying coefficients across pre- and post-1999 subperiods are superior to alternatives. The factor-based forecast results provide new evidence for a nationwide housing crisis in 2007–2008, and thus suggest possible effectiveness of monetary policies in stabilizing recent housing boom-bust cycles.

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Notes

  1. This study uses housing starts to proxy for housing volumes of 51 states and 4 Census regions in the US.

  2. The examples are MSAs in New York, Massachusetts and California, as noted by the authors.

  3. Because state-level housing price and starts are available monthly but regional data are available only quarterly, quarterly values of state-level time series are computed by averaging the monthly values over the corresponding quarter.

  4. Housing starts in DC are zero in most periods from 1995 to 1997, and thus the model excludes its housing volume.

  5. MA is the only exception whose MSE ratio of split-split/full-split is less than unity (0.90) after 1999.

  6. They examine how the recent recession in 2007–2009 differs from the previous business cycles under a dynamic factor framework, and they find no new common factor of macroeconomic variables in the post-2007 period. Hence, they suggest the recent recession results from larger versions of old economic shocks rather than unpredicted new ones.

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  1. Department of Business Administration, National Taipei University, 151, University Rd, San Shia District, New Taipei City, 23741, Taiwan

    MeiChi Huang

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Huang, M. A Nationwide or Localized Housing Crisis? Evidence from Structural Instability in US Housing Price and Volume Cycles. Comput Econ 53, 1547–1563 (2019). https://doi.org/10.1007/s10614-018-9822-9

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