Price Exuberance and Contagion across Housing Markets: Evidence from US Metropolitan Areas

Chowdhury, Md Shahedur R.; Damianov, Damian S.; Escobari, Diego

Abstract

Contagion occurs when cross-market correlation increases because of a shock to one market. Identifying shocks as episodes of house price exuberance, we provide evidence for contagion effects among the largest metropolitan markets in the US. We find that changes in income, interest rates, and unemployment also create contagion effects. These empirical findings are consistent with a model in which shocks to house prices and economic variables relax household down payment constraints and increase household mobility and housing demand. These effects are explored in an equilibrium framework in which house prices and household choices are determined endogenously, and we account for this endogeneity in our empirical study. Our results are robust to various empirical specifications, and we discuss the implications of these findings for households and investors.

Citation

Chowdhury, M. S. R., Damianov, D. S., & Escobari, D. (2024). Price Exuberance and Contagion across Housing Markets: Evidence from US Metropolitan Areas. Journal of Real Estate Finance and Economics, 69, 132–163. https://doi.org/10.1007/s11146-022-09925-w

• Journal Article Type: Article
• Acceptance Date: Oct 25, 2022
• Online Publication Date: Nov 14, 2022
• Publication Date: 2024
• Deposit Date: Oct 26, 2022
• Publicly Available Date: Nov 15, 2023
• Journal: The Journal of Real Estate Finance and Economics
• Print ISSN: 0895-5638
• Electronic ISSN: 1573-045X
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 69
• Pages: 132–163
• DOI: https://doi.org/10.1007/s11146-022-09925-w
• Public URL: https://durham-repository.worktribe.com/output/1187440