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Local market and national components in house price appreciation

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  • Gyourko, Joseph
  • Voith, Richard

Abstract

We analyze real home price appreciation using a long time series (1971-1989) and large cross section (56 metro areas). Our findings yield important new insights into two outstanding issues in real estate finance an economics. The first deals with the implications for investment opportunities in housing across metro areas. A striking result is that we cannot reject the null hypothesis of equal appreciation rates across locales. A priori, the results are suggestive of equal expected appreciation across the different local markets. However, it is noteworthy that we find significant serial correlation in some local appreciation series. This is consistent with previous findings by Case and Shiller (1989), and suggests that prescient market timers might have been able to make money in selective markets. We then consider the potential implication of equal appreciation rates across cities for housing market equilibrium in light of the fact that price levels do materially differ across metro areas. We argue that equal real appreciation rates starting from different price levels imply increasingly divergent prices of local traits in terms of foregone consumption. Without special assumptions with respect to income and productivity differentials across locations or to local trait income elasticities of demand, the appreciation rates in high housing price level areas ultimately have to fall below those in low price level areas. Preliminary evidence indicates that higher priced areas tend to have significantly lower appreciation rates (controlling for local fixed effects and a common, time-varying effect).
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Suggested Citation

  • Gyourko, Joseph & Voith, Richard, 1992. "Local market and national components in house price appreciation," Journal of Urban Economics, Elsevier, vol. 32(1), pages 52-69, July.
    • Handle: RePEc:eee:juecon:v:32:y:1992:i:1:p:52-69
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    Cited by:

    1. Malpezzi, Stephen, 1999. "A Simple Error Correction Model of House Prices," Journal of Housing Economics, Elsevier, vol. 8(1), pages 27-62, March.
    2. An, Galina & Becker, Charles & Cheng, Enoch, 2021. "Housing price appreciation and economic integration in a transition economy: Evidence from Kazakhstan," Journal of Housing Economics, Elsevier, vol. 52(C).
    3. Frans M. Dieleman & William A. V. Clark & Marinus C. Deurloo, 2000. "The Geography of Residential Turnover in Twenty-seven Large US Metropolitan Housing Markets, 1985-95," Urban Studies, Urban Studies Journal Limited, vol. 37(2), pages 223-245, February.
    4. Colin Jones & Allison Orr, 1999. "Local Commercial and Industrial Rental Trends and Property Market Constraints," Urban Studies, Urban Studies Journal Limited, vol. 36(2), pages 223-237, February.
    5. David E. Frame, 2008. "Regional Migration and House Price Appreciation," International Real Estate Review, Global Social Science Institute, vol. 11(1), pages 96-112.
    6. Chi-Young Choi & Alexander Chudik & Aaron Smallwood, 2024. "Time-varying Persistence of House Price Growth: The Role of Expectations and Credit Supply," Globalization Institute Working Papers 426, Federal Reserve Bank of Dallas.
    7. Gatzlaff, Dean H. & Haurin, Donald R., 1998. "Sample Selection and Biases in Local House Value Indices," Journal of Urban Economics, Elsevier, vol. 43(2), pages 199-222, March.
    8. Alexander N. Bogin & LaRhonda Ealey & Kirsten Landeryou & Scott Smith & Andrew Tsai, 2023. "Geographic Disaggregation of House Price Stress Paths: Implications for Single-Family Credit Risk Measurement," FHFA Staff Working Papers 23-02, Federal Housing Finance Agency.
    9. Ghysels, Eric & Plazzi, Alberto & Valkanov, Rossen & Torous, Walter, 2013. "Forecasting Real Estate Prices," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 509-580, Elsevier.
    10. Rena Sivitanidou, 1999. "Office Rent Processes: The Case of U.S. Metropolitan Markets," Working Paper 8664, USC Lusk Center for Real Estate.
    11. repec:fgv:eaespw:01 is not listed on IDEAS
    12. Roberta Capello, 2001. "Rendita fondiaria e dinamica urbana: le determinanti dello sviluppo urbano nel caso italiano," Rivista di Politica Economica, SIPI Spa, vol. 91(1), pages 75-118, January.
    13. Jiyoung Chae & Anil K. Bera, 2024. "Spatial Market Inefficiency in Housing Market: A Spatial Quantile Regression Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 69(1), pages 70-99, July.
    14. William A. Fischel, 2004. "An Economic History of Zoning and a Cure for its Exclusionary Effects," Urban Studies, Urban Studies Journal Limited, vol. 41(2), pages 317-340, February.

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