Empirical Economics

, Volume 52, Issue 4, pp 1423–1450 | Cite as

Housing price–volume correlations and boom–bust cycles



This paper investigates the housing price–volume nexus based on different levels of liquidity for the US new one-family housing market over the period between January 1963 and November 2009. We mainly analyze the differential responses of trading volumes to housing price changes (denoted as price elasticity), employing a quantile cointegrating approach that allows us to capture housing boom–bust cycles earlier. In addition, we also explore the long-term impacts of monetary policies on housing sales. According to our findings, the price elasticities perform differently across the booms and busts of housing markets. Shifts in price elasticities can transmit signals of oncoming upturns, recovery, and downturns of housing cycles, which possibly relate to the business cycle. On the other hand, a contractionary monetary policy exerts a much effective control over an overheated housing market, but an expansionary monetary policy has a relatively small influence on stimulating a depressed housing market. Our findings offer some important suggestions and policy implications.


Housing price Housing trading volume Nonlinear relationship Quantile cointegration Momentum cycle 

JEL Classification

C32 G12 E32 



The authors are grateful to the comments of the editor and the two anonymous referees on our paper. In addition, we are grateful to National Sun Yat-sen University for financial support through Grant 05C0301051.


  1. Acemoglu D, Scott A (1994) Asymmetries in the cyclical behavior of UK labour markets. Econ J 104:1303–1323. doi: 10.2307/2235450 CrossRefGoogle Scholar
  2. Akinboade OA, Makina D (2009) Bank lending and business cycles: South African evidence. Afr Dev Rev 21:476–498. doi: 10.1111/j.1467-8268.2009.00219.x CrossRefGoogle Scholar
  3. Arbel Y, Ben-Shahar D, Sulganik E (2009) Mean reversion and momentum: another look at the price-volume correlation in the real estate market. J Real Estate Finance Econ 39:316–335. doi: 10.1007/s11146-009-9180-4 CrossRefGoogle Scholar
  4. Beaudry P, Koop G (1993) Do recessions permanently change output? J Monet Econ 31:149–163. doi: 10.1016/0304-3932(93)90042-e CrossRefGoogle Scholar
  5. Black A, Fraser P, Hoesli M (2006) House prices, fundamentals and bubbles. J Bus Finance Account 33:1535–1555. doi: 10.1111/j.1468-5957.2006.00638.x CrossRefGoogle Scholar
  6. Blackley DM (1999) The long-run elasticity of new housing supply in the United States: empirical evidence for 1950 to 1994. J Real Estate Finance Econ 18:25–42. doi: 10.1023/A:1007781228328 CrossRefGoogle Scholar
  7. Born WL, Pyhrr SA (1994) Real estate valuation: the effect of market and property cycles. J Real Estate Res 9:455–486. doi: 10.5555/rees.9.4.t21866r7h4406x20 Google Scholar
  8. Case K, Shiller RJ (1988) The behavior of home buyers in boom and post-boom markets. N Engl Econ Rev. doi: 10.3386/w2748 Google Scholar
  9. Chordia T, Shivakumar L (2002) Momentum, business cycle, and time-varying expected returns. J Finance 57:985–1019. doi: 10.2139/ssrn.243807 CrossRefGoogle Scholar
  10. Clayton J, Miller N, Peng L (2010) Price-volume correlation in the housing market: causality and co-movements. J Real Estate Finance Econ 40:14–40. doi: 10.2139/ssrn.1106437 CrossRefGoogle Scholar
  11. Crawford GW, Fratantoni MC (2003) Assessing the forecasting performance of regime-switching, ARIMA and GARCH models of house prices. Real Estate Econ 31:223–243. doi: 10.1111/1540-6229.00064 CrossRefGoogle Scholar
  12. DeBondt WFM, Richard HT (1985) Does the stock market overreact? J Finance 40:793–805. doi: 10.1111/j.1540-6261.1985.tb05004.x CrossRefGoogle Scholar
  13. Dickey DA, Fuller WA (1979) Distribution of the estimators for autoregressive time series with a unit root. J Am Stat Soc 74:427–431. doi: 10.1080/01621459.1979.10482531 Google Scholar
  14. Dissanaike G (1997) Do stock market investors overreact? J Bus Finance Account 24:27–49. doi: 10.1111/1468-5957.00093 CrossRefGoogle Scholar
  15. DTZ Consulting Research (2006) Housing. Economic Development and Productivity Literature Review, London DBERRGoogle Scholar
  16. Ebru C, Eban A (2011) Determinants of house prices in Istanbul: a quantile regression approach. Qual Quan 45:305–317. doi: 10.1007/s11135-009-9296-x CrossRefGoogle Scholar
  17. Edelstein RH, Tsang D (2007) Dynamic residential housing cycles analysis. J Real Estate Finance Econ 35:295–313. doi: 10.2139/ssrn.984908 CrossRefGoogle Scholar
  18. Edge RM, Laubach T, Williams JC (2007) Learning and shifts in long-run productivity growth. J Monet Econ 50:2421–2438. doi: 10.2139/ssrn.530745 CrossRefGoogle Scholar
  19. Enders W, Granger C (1998) Unit root tests and asymmetric adjustment with an example sing the term structure of interest rates. J Bus Econ Stat 16:304–311. doi: 10.2307/1392506 Google Scholar
  20. Engle RF, Granger CWJ (1987) Co-integration and error correction: representation, estimation, and testing. Econometrica 55:251–276. doi: 10.2307/1913236 CrossRefGoogle Scholar
  21. Fama EF, French KR (1989) Business conditions and expected returns on stocks and bonds. J Financ Econ 25:23–49. doi: 10.1016/0304-405x(89)90095-0 CrossRefGoogle Scholar
  22. Field MK, Pagoulatos E (1997) The cyclical behavior of price elasticity of demand. South Econ J 64:118–129. doi: 10.2307/1061042 CrossRefGoogle Scholar
  23. Figelman I (2007) Stock return momentum and reversal. J Portf Manag 34:51–67. doi: 10.3905/jpm.2007.698034 CrossRefGoogle Scholar
  24. Fisher J, Gatzlaff D, Geltner D, Haurin D (2003) Controlling for impact of variable liquidity in commercial real estate price indices. Real Estate Econ 31:269–303. doi: 10.1111/1540-6229.00066 CrossRefGoogle Scholar
  25. Forgey FA, Rutherford RC, Springer TM (1996) Search and liquidity in single-family housing. Real Estate Econ 24:273–292. doi: 10.1111/1540-6229.00691 CrossRefGoogle Scholar
  26. Genesove D, Mayer CJ (1997) Equity and time to sale in the real estate market. Am Econ Rev 87:255–269. doi: 10.3386/w4861 Google Scholar
  27. Genesove D, Mayer CJ (2001) Loss aversion and seller behavior: evidence from the housing market. Quart J Econ 116:1233–1260. doi: 10.3386/w8143 CrossRefGoogle Scholar
  28. Glaeser EL, Gyourko J, Saiz A (2008) Housing supply and housing bubbles. J Urban Econ 64:198–217. doi: 10.3386/w14193 CrossRefGoogle Scholar
  29. Greenwald BC, Stiglitz JE (1993) Financial market imperfections and business cycles. Q J Econ 108:77–114. doi: 10.3386/w2494 CrossRefGoogle Scholar
  30. Hamilton JD (2008) Daily monetary policy shocks and new home sales. J Monet Econ 55:1171–1190. doi: 10.1016/j.jmoneco.2008.08.010 CrossRefGoogle Scholar
  31. Harris R, Arku G (2006) Housing and economic development: the evolution of an idea since 1945. Habitat Int 30:1007–1017. doi: 10.1016/j.habitatint.2005.10.003 CrossRefGoogle Scholar
  32. Harrod RF (1936) Imperfect competition and the trade cycle. Rev Econ Stat 18:84–88. doi: 10.2307/1927586 CrossRefGoogle Scholar
  33. Hogrefe J, Yao Y (2016) Offshoring and labor income risk: an empirical investigation. Empir Econ 50:1045–1063. doi: 10.1007/s00181-015-0966-3 CrossRefGoogle Scholar
  34. Hong H, Stein JC (1999) A unified theory of underreaction, momentum trading, and overreaction in asset markets. J Finance 54:2143–2184. doi: 10.1111/0022-1082.00184 CrossRefGoogle Scholar
  35. Hort K (2000) Prices and turnover in the market for owner-occupied homes. Reg Sci Urban Econ 30:99–119. doi: 10.1016/s0166-0462(99)00028-9 CrossRefGoogle Scholar
  36. Johansen S (1991) Estimation and hypothesis testing of cointegration vectors in gaussian vector autoregressive models. Econometrica 59:1551–1580. doi: 10.2307/2938278 CrossRefGoogle Scholar
  37. Johansen S (1995) Likelihood-based inference in cointegrated vector autoregressive models. Oxford University Press, OxfordCrossRefGoogle Scholar
  38. Kau JB, Sirmans CF (1979) Urban land value functions and the price elasticity of demand for housing. J Urban Econ 6:112–121. doi: 10.1016/0094-1190(79)90019-6 CrossRefGoogle Scholar
  39. Kearl JR, Mishkin FS (1977) Illiquidity, the demand for residential housing, and monetary policy. J Finance 32:1571–1586. doi: 10.2307/2326811 CrossRefGoogle Scholar
  40. Kim MJ, Startz R (1991) Mean reversion in stock prices? A reappraisal of the empirical evidence. Rev Econ Stud 58:515–528. doi: 10.2307/2298009 CrossRefGoogle Scholar
  41. Krainer J (2001) A theory of liquidity in residential real estate markets. J Urban Econ 49:32–53. doi: 10.1006/juec.2000.2180 CrossRefGoogle Scholar
  42. Kwiatkowski D, Phillips PCB, Schmidt P, Shin Y (1992) Testing the null hypothesis of stationarity against the alternative of a unit root. J Econ 54:159–178. doi: 10.1016/0304-4076(92)90104-y CrossRefGoogle Scholar
  43. Leamer EE (2010) Tantalus on the road to asymptopia. J Econ Perspect 24:31–46. doi: 10.1257/jep.24.2.31 CrossRefGoogle Scholar
  44. Leamer EE (2015) Housing really is the business cycle: what survives the lessons of 2008–2009? J Money Credit Bank 47:43–50. doi: 10.1111/jmcb.12189 CrossRefGoogle Scholar
  45. Lee CC (2013) Insurance and real output: the key role of banking activities. Macroecon Dyn 17:235–260. doi: 10.1017/s1365100511000101 CrossRefGoogle Scholar
  46. Lee CC, Zeng JH (2011) Revisiting the relationship between spot and futures oil prices: evidence from quantile cointegration regression. Energy Econ 33:924–935. doi: 10.1016/j.eneco.2011.02.012 CrossRefGoogle Scholar
  47. Lee CC, Chen MP, Hsieh KM (2013) Industry herding and market states: evidence from the chinese stock market. Quant Finance 13:1091–1113. doi: 10.1080/14697688.2012.740571 CrossRefGoogle Scholar
  48. Lee CC, Lin CW, Zeng JH (2016) Financial liberalization, insurance market, and the likelihood of financial crises. J Int Money Finance 62:25–51. doi: 10.1016/j.jimonfin.2015.12.002 CrossRefGoogle Scholar
  49. Leung CKY, Feng D (2005) What drives the property price-trading volume correlation? Evidence from a commercial real estate market. J Real Estate Finance Econ 31:241–255. doi: 10.1007/s11146-005-1374-9 CrossRefGoogle Scholar
  50. Leung CKY, Lau GCK, Leong YCF (2002) Testing alternative theories of the property price-trading volume correlation. J Real Estate Res 23:253–263. doi: 10.5555/rees.23.3.1023485441041808 Google Scholar
  51. Lin Z, Vandell KD (2007) Illiquidity and pricing biases in the real estate market. Real Estate Econ 35:291–330. doi: 10.1111/j.1540-6229.2007.00191.x CrossRefGoogle Scholar
  52. Lucas R (1978) Asset prices in an exchange economy. Econometrica 46:1429–1445. doi: 10.2307/1913837 CrossRefGoogle Scholar
  53. Maddala GS, Kim I (1998) Unit roots, cointegration, and structural change. Cambridge University Press, CambridgeGoogle Scholar
  54. Mascarenhas B, Aaker DA (1989) Strategy over the Business Cycle. Strateg Manag J 10:199–210. doi: 10.1002/smj.4250100302 CrossRefGoogle Scholar
  55. Miles W (2008) Boom-Bust and the forecasting performance of linear and non-linear models of house prices. J Real Estate Finance Econ 36:249–264. doi: 10.1007/s11146-007-9067-1 CrossRefGoogle Scholar
  56. Novy-Marx R (2009) Hot and cold markets. Real Estate Econ 37:1–22. doi: 10.1111/j.1540-6229.2009.00232.x CrossRefGoogle Scholar
  57. Pagan AR, Sossounov KA (2003) A simple framework for analysing bull and bear markets. J Appl Econ 18:23–46. doi: 10.1002/jae.664 CrossRefGoogle Scholar
  58. Park J, Hahn S (1999) Cointegrating regressions with time varying coefficients. Econ Theory 15:664–703. doi: 10.1017/s0266466699155026 Google Scholar
  59. Parker PM, Neelamegham R (1997) Price elasticity dynamics over the product life cycle: a study of consumer durables. Mark Lett 8:205–216. doi: 10.1023/A:1007962520455 CrossRefGoogle Scholar
  60. Pena JI, Rodriguez R (2006) On the economic link between asset prices and real activity. J Bus Finance Account 34:889–916. doi: 10.1111/j.1468-5957.2006.00659.x CrossRefGoogle Scholar
  61. Perez-Quiros G, Timmermann A (2001) Business cycle asymmetries in stock returns: evidence from higher order moments and conditional densities. J Econ 103:259–306. doi: 10.1016/s0304-4076(01)00045-8 CrossRefGoogle Scholar
  62. Phillips PCB, Perron P (1988) Testing for a unit root in time series regressions. Biometrika 75:335–346. doi: 10.2307/2336182 CrossRefGoogle Scholar
  63. Saikkonen P (1991) Asymptotically efficient estimation of cointegration regression. Econ Theory 7:1–21. doi: 10.1017/s0266466600004217 CrossRefGoogle Scholar
  64. Shi S, Young M, Hargreaves B (2010) House price-volume dynamics: evidence from 12 cities in New Zealand. J Real Estate Res 32:75–99. doi: 10.5555/rees.32.1.114l0k0011knt58k Google Scholar
  65. Smith PN, Sorensen S, Wickens M (2010) The equity premium and the business cycles: the role of demand and supply shocks. Int J Finance Econ 15:134–152. doi: 10.1002/ijfe.395 Google Scholar
  66. Stein J (1995) Prices and trading volume in the housing market: a model with downpayment constraints. Quart J Econ 110:379–406. doi: 10.2307/2118444 CrossRefGoogle Scholar
  67. Tversky A, Kahneman D (2001) Loss aversion in riskless choice: a reference-dependent model. Q J Econ 106:1039–1061. doi: 10.2307/2937956 CrossRefGoogle Scholar
  68. Wang K, Zhou Y, Chan SH, Chau KW (2000) Over-confidence and cycles in real estate markets: cases in Hong Kong and Asia. Int Real Estate Rev 3:93–108Google Scholar
  69. Winarso H, Firman T (2002) Residential land development in Jabotabek, Indonesia: triggering economic crisis? Habitat Int 26:487–506. doi: 10.1016/s0197-3975(02)00023-1 CrossRefGoogle Scholar
  70. Xiao Z (2009) Quantile cointegrating regression. J Econ 150:248–260. doi: 10.1016/j.jeconom.2008.12.005 CrossRefGoogle Scholar
  71. Yiu CY, Man KF, Wong SK (2008) Trading volume and price dispersion in housing markets. J Prop Res 25:203–219. doi: 10.1080/09599910802696615 CrossRefGoogle Scholar
  72. Zhou ZG (1997) Forecasting sales and price for existing single-family homes: a VAR model with error correction. J Real Estate Res 14:155–167. doi: 10.5555/rees.14.2.4qu6v0672363nhr2 Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  • Chien-Chiang Lee
    • 1
  • Chin-Yu Wang
    • 2
  • Jhih-Hong Zeng
    • 1
  1. 1.Department of FinanceNational Sun Yat-sen UniversityKaohsiungTaiwan
  2. 2.Department of Insurance and Financial ManagementTakming University of Science and TechnologyTaipei CityTaiwan

Personalised recommendations