Abstract
The interconnectedness of markets is a useful measure of risk and therefore an indicator of economic stability. In this paper, the interconnectedness among housing markets in different metropolitan areas was analyzed. Interconnectedness between the housing market and other markets were also calculated. In regional studies, West Coast housing markets were found to be the most influential on housing markets elsewhere. Interestingly, overall connectedness across regions steadily increased prior to the subprime mortgage crisis, representing a systematic risk increase. When analyzing diverse markets in relation to the housing market, the stock market was found to have the highest interconnectedness, suggesting that financial health of stock market depend on financial health of housing market. The increased systematic risk due to high housing market interconnectedness coupled with the interdependence between the stock market and the housing market were key indicators of the subprime mortgage crisis. Such measures should be monitored in the future to avoid a similar economic disaster.
Highlights
It is true to state that the United States has recovered from the subprime mortgage crisis that occurred ten years ago
Monetary policies can respond to the increases in systematic risks[8]
The subprime mortgage crisis could have made the Federal Reserve to opt for the substantial modification of its monetary
Summary
It is true to state that the United States has recovered from the subprime mortgage crisis that occurred ten years ago. For purposes of preventing mortgage crises of that nature, this research comprehensively analyzes the effect of the housing market in 20 cities in the United States. Changes before, in the course of and upon the end of the subprime mortgage crisis are a reflection of the impact of connectedness among the said housing markets. The objective of undertaking this study is to examine changes in the housing markets connectedness among major cities across the U. The outcomes of the study will enlighten on the nature of the housing markets risks, any other risks that are likely linked to the financial markets, and the uncertainty of the risks that face the economy as a whole
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