Housing market cycles and duration dependence in the United States and Canada

Abstract

Housing wealth is a large component of households’ total wealth and plays an important role in aggregate business cycles. In this article, we explore data on real house price cycles at the aggregate level and city level for the US and Canada. Using a panel of 137 cities, we examine the duration and characteristics of housing market cycles in North America. We find that North American housing cycles are long, averaging 5 years of expansion and 4 years of contraction. We estimate a discrete time survival model with a probit specification for house price expansions and contractions. This model allows us to test for duration dependence. We find that US housing market expansions have positive duration dependence since their exit probabilities increase with duration, while contractions seem to have no duration dependence. Canadian house price cycles did not exhibit duration dependence. Standard determinants of house prices (interest rates, income and population growth) are included as controls.