Asymmetric dependence in house prices: evidence from USA and international data

Abstract

This paper models co-movements in house prices using a copula-based approach that allows for asymmetric contemporaneous and dynamic dependence between prices in different locations. The models consider both US co-movements across different census divisions and international co-movements across different OECD countries. Results show evidence of strong contemporaneous tail dependence among US census divisions, indicating that extreme price movements in different areas tend to happen in tandem. On the international level, by contrast, results find almost no evidence of contemporaneous or dynamic linkages in house price movements between different countries. These results hold important implications for informing upon risk embedded in mortgage backed securities.