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Comovement of Home Prices: A Conditional Copula Approach

Author

Listed:
  • Lei Hou

    (Institute of World Economics and Politics, Chinese Academy of Social Sciences)

  • Wei Long

    (Department of Economics, Tulane University)

  • Qi Li

    (Department of Economics, Texas A&M University)

Abstract

Even though housing markets in different areas are relatively localized, regional home prices have become closely correlated and tend to be simultaneously affected by many national economic factors. In this paper, through the dynamic copula model, we confirm that regional home price dependence is time-varying and the conventional time-invariant copulas underestimate the degree of dependence during economic expansions and recessions. In essence, the U.S. residential real estate market has become more integrated since the mid-1980s. Using the conditional copula model, we further identify how the dependence among regional housing markets evolves along with some fundamental economic factors such as unemployment rate and interest rate. These findings can help investors and home buyers to better identify and evaluate the systematic risk in the nationwide housing market.

Suggested Citation

  • Lei Hou & Wei Long & Qi Li, 2019. "Comovement of Home Prices: A Conditional Copula Approach," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 297-318, May.
    • Handle: RePEc:cuf:journl:y:2019:v:20:i:1:houlongli
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    References listed on IDEAS

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    More about this item

    Keywords

    Comovement; Copula; Dependence; Home price;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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