Advertisement

Computational Economics

, Volume 53, Issue 4, pp 1547–1563 | Cite as

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

  • MeiChi HuangEmail author
Article
  • 126 Downloads

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.

Keywords

Housing crisis Structural instability Housing boom-bust cycle Housing factor Dynamic factor model 

References

  1. Akay, O., Senyuz, Z., & Yoldas, E. (2013). Hedge fund contagion and risk-adjusted returns: A Markov-switching dynamic factor approach. Journal of Empirical Finance, 22, 16–29.Google Scholar
  2. Akkoyun, H. C., Arslan, Y., & Kanik, B. (2013). Housing prices and transaction volume. Journal of Housing Economics, 22(2), 119–134.Google Scholar
  3. Baffoe-Bonnie, J. (1998). The dynamic impact of macroeconomic aggregates on housing prices and stock of houses: A national and regional analysis. Journal of Real Estate Finance and Economics, 17(2), 179–197.Google Scholar
  4. Bai, J., & Ng, S. (2002). Determining the number of factors in approximate factor models. Econometrica, 70(1), 191–221.Google Scholar
  5. Baltagi, B. H., & Li, J. (2014). Further evidence on the spatio-temporal model of house prices in the United States. Journal of Applied Econometrics, 29(3), 515–522.Google Scholar
  6. Banerjee, A., Marcellino, A. M., & Masten, I. (2008). Forecasting macroeconomic variables using diffusion indexes in short samples with structural change. In D. Rapach & M. Wohar (Eds.), Forecasting in the presence of structural breaks and model uncertainty. Bingley: Emerald Group.Google Scholar
  7. Berger, T., & Pozzi, L. (2013). Measuring time-varying financial market integration: An unobserved components approach. Journal of Banking & Finance, 37(2), 463–473.Google Scholar
  8. Boysen-Hogrefe, J. (2013). A dynamic factor model with time-varying loadings for euro area bond markets during the debt crisis. Economics Letters, 118(1), 50–54.Google Scholar
  9. Breitung, J., & Eickmeier, S. (2011). Testing for structural breaks in dynamic factor models. Journal of Econometrics, 163(1), 71–84.Google Scholar
  10. Campbell, J. Y., & Cocco, J. F. (2007). How do house prices affect consumption? Evidence from micro data. Journal of Monetary Economics, 54(3), 591–621.Google Scholar
  11. Clayton, J., Miller, N., & Peng, L. (2010). Price-volume correlation in the housing markets: Causality and co-movements. Journal of Real Estate Finance and Economics, 40(1), 14–40.Google Scholar
  12. Cordis, A. S., & Kirby, C. (2011). Regime-switching factor models in which the number of factors defines the regime. Economics Letters, 112(2), 198–201.Google Scholar
  13. Crawford, G. W., & Fratantoni, M. C. (2003). Assessing the forecasting performance of regime-switching, ARIMA and GARCH models of house prices. Real Estate Economics, 31(2), 223–243.Google Scholar
  14. Croce, R. M., & Haurin, D. R. (2009). Predicting turning points in the housing market. Journal of Housing Economics, 18(4), 281–293.Google Scholar
  15. Del Negro, M., & Otrok, C. (2007). 99 luftballons: Monetary policy and the house price boom across U.S. States. Journal of Monetary Economics, 54(7), 1962–1985.Google Scholar
  16. Edelstein, R. H., & Tsang, D. (2007). Dynamic residential housing cycles analysis. Journal of Real Estate Finance and Economics, 35(3), 295–313.Google Scholar
  17. Fadiga, M. L., & Wang, Y. S. (2009). A multivariate unobserved component analysis of US housing market. Journal of Economics and Finance, 33(1), 13–26.Google Scholar
  18. Flor, M. A., & Klarl, T. (2017). On the cyclicity of regional house prices: New evidence for U.S. metropolitan statistical areas. Journal of Economic Dynamics and Control, 77, 134–156.Google Scholar
  19. Garcia-Martos, C., Rodriguez, J., & Sanchez, M. J. (2011). Forecasting electricity prices and their volatilities using unobserved components. Energy Economics, 33(6), 1227–1239.Google Scholar
  20. Goodman, A. C., & Thibodeau, T. G. (2008). Where are the speculative bubbles in US housing markets? Journal of Housing Economics, 17(2), 117–137.Google Scholar
  21. Hao, L., & Ng, E. C. Y. (2011). Predicting Canadian recessions using dynamic probit modelling approaches. Canadian Journal of Economics, 44(4), 1297–1330.Google Scholar
  22. Hassani, H., Ghodsi, Z., Gupta, R., & Segnon, M. (2017). Forecasting home sales in the four Census regions and the aggregate US economy using singular spectrum analysis. Computational Economics, 49(1), 83–97.Google Scholar
  23. Hendry, D. F., & Clements, M. P. (2004). Pooling of forecasts. Econometrics Journal, 7(1), 1–31.Google Scholar
  24. Holly, S., Pesaran, M. H., & Yamagata, T. (2010). A spatio-temporal model of house prices in the USA. Journal of Econometrics, 158(1), 160–173.Google Scholar
  25. Huang, M. (2013a). The role of people’s expectation in the recent US housing boom and bust. The Journal of Real Estate Finance and Economics, 46(3), 452–479.Google Scholar
  26. Huang, M. (2013b). Housing bubble implications: The perspective of housing price predictability. Economics Bulletin, 33(1), 586–596.Google Scholar
  27. Huang, M. C. (2014). Monetary policy implications of housing shift-contagion across regional markets. Journal of Economics and Finance, 38(4), 589–608.Google Scholar
  28. Kim, S. W., & Bhattacharya, B. (2009). Regional housing prices in the USA: An empirical investigation of non- linearity. Journal of Real Estate Finance and Economics, 38(4), 443–460.Google Scholar
  29. Koop, G., & Korobills, D. (2011). UK macroeconomic forecasting with many predictors: Which model forecast best and when do they do so? Economic Modelling, 28(5), 2307–2318.Google Scholar
  30. Lai, R. N., & Van Order, R. (2010). Momentum and house price growth in the U.S.: Anatomy of a bubble. Real Estate Economics, 38(4), 753–773.Google Scholar
  31. Leamer, E. E. (2007). Housing is the business cycle. NBER Working Paper No. 13248, National Bureau of Economic Research.Google Scholar
  32. Lee, J. (2012). Measuring business cycle co-movements in Europe: Evidence from a dynamic factor model with time-varying parameters. Economics Letters, 115(3), 438–440.Google Scholar
  33. Miles, M. (2015). Regional house price segmentation and convergence in the US: A new approach. Journal of Real Estate Finance and Economics, 50(1), 113–128.Google Scholar
  34. Miller, N., Peng, L., & Sklarz, M. (2011a). House prices and economic growth. Journal of Real Estate Finance and Economics, 42(4), 522–541.Google Scholar
  35. Miller, N., Peng, L., & Sklarz, M. (2011b). The economic impact of anticipated house price changes—Evidence from home sales. Real Estate Economics, 39(2), 345–378.Google Scholar
  36. Moench, E., & Ng, S. (2011). A hierarchical factor analysis of U.S. housing market dynamics. Econometrics Journal, 14(1), C1–C24.Google Scholar
  37. Ng, E. C. Y. (2012). Forecasting US recessions with various risk factors and dynamic probit models. Journal of Macroeconomics, 34(1), 112–125.Google Scholar
  38. Oikarinen, E. (2012). Empirical evidence on the reaction speeds of housing prices and sales to demand shocks. Journal of Housing Economics, 21(1), 41–54.Google Scholar
  39. Poncela, P., Rodriguez, J., Sanchez-Mangas, R., & Senra, E. (2011). Forecast combination through dimension reduction techniques. International Journal of Forecasting, 27(2), 224–237.Google Scholar
  40. Rapach, D. E., & Strauss, J. K. (2009). Differences in housing price forecastability across US states. International Journal of Forecasting, 25(2), 351–372.Google Scholar
  41. Shiller, R. J. (2006). Long-term perspectives on the current boom in home prices. Economists’ Voice, 3(4), 1–11.Google Scholar
  42. Shiller, R. J. (2008). Understanding recent trends in house prices and homeownership. In Jackson Hole Conference Series (Ed.), Housing, housing finance and monetary policy (pp. 85–123). Kansas City, MO.Google Scholar
  43. Silos, P., & Vilan, D. (2009). Is more still better? Revisiting the sixth district coincident indicator. Federal Reserve Bank of Atlanta Economic Review, 94(3), 1–8.Google Scholar
  44. Stock, J. H., & Watson, M. W. (2002a). Macroeconomic forecasting using diffusion indexes. Journal of Business and Economic Statistics, 20(2), 147–162.Google Scholar
  45. Stock, J. H., & Watson, M. W. (2002b). Forecasting using principal components from a large number of predictors. Journal of the American Statistical Association, 97(460), 1167–1179.Google Scholar
  46. Stock, J. H., & Watson, M. W. (2007). Why has inflation become harder to forecast? Journal of Money, Credit, and Banking, 39(1), 3–33.Google Scholar
  47. Stock, J. H., & Watson, M. W. (2008). Forecasting in dynamic factor models subject to structural instability. In J. Castle & N. Shephard (Eds.), The methodology and practice of econometrics, a festschrift in honour of Professor David F. Hendry. Oxford: Oxford University Press.Google Scholar
  48. Stock, J. H., & Watson, M. W. (2009). The evolution of national and regional factors in U.S. housing construction. In T. Bollerslev, J. Russell, & M. Watson (Eds.), Volatility and time series econometrics: Essays in Honour of Robert F. Engle. Oxford: Oxford University Press.Google Scholar
  49. Stock, J. H., & Watson, M. W. (2012). Disentangling the channels of the 2007–2009 recession. Brookings Papers on Economic Activity, 43(1), 81–156.Google Scholar
  50. Topel, R., & Rosen, S. (1988). Housing investment in the United States. Journal of Political Economy, 96(4), 718–740.Google Scholar
  51. Wit, E. R., Englund, P., & Francke, M. K. (2013). Price and transaction volume in the Dutch housing markets. Regional Science and Urban Economics, 43(2), 220–241.Google Scholar
  52. Zaher, F. (2007). Evaluating factor forecasts for the UK: The role of asset prices. International Journal of Forecasting, 23(4), 679–693.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Business AdministrationNational Taipei UniversityNew Taipei CityTaiwan

Personalised recommendations