National House Price Research Articles

Is There Long-run Convergence among Regional House Prices in the UK?

This paper investigates the long-run convergence of regional house prices in the UK. Existing studies have failed to reach a consensus on whether or not regional house prices exhibit long-run convergence with each other. The application is proposed of a new test involving unit root testing of the first principal component based on regional—national house price differentials. Using mix-adjusted quarterly data for 1973—2006, it is found that the first principal component is stationary. This suggests that all UK regional house prices are driven by a single common stochastic trend. Further analysis suggests that those regions that are more distant from London exhibit the highest degrees of persistence with respect to deviations in house price differentials.

Trading House Price Risk with Existing Futures Contracts

This paper examines the use of futures contracts to hedge residential real estate price risk. We examine whether existing futures contacts can effectively be used to offset volatility in national house prices. Little evidence of any simple systematic relation between national prices and futures prices is found. Since house prices are not easily replicated with a portfolio of existing futures contracts, a further implication is that the Chicago Mercantile’s introduction of a financial asset whose value reflects house prices will help complete the market. Nevertheless, the success of the CME’s new derivative contracts may be limited in light of state and regional house price correlations.

Regional business cycles in New Zealand: Do they exist? What might drive them?

Abstract. We establish classical business cycles, for New Zealand's 14 regions and aggregate national activity. Regional cycles rarely die of old age but are terminated by particular events. Concordance statistic measures show significant contemporaneous associations between the New Zealand cycle and 11 of the regional cycles. Over half the bi‐regional co‐movements are not significant. Geographical proximity influences co‐movement between regions, as do unusually dry climatic conditions. Neither real national house price movements, nor net migration movements co‐move significantly with regional cycle phases. For key regions, movements in New Zealand's terms of trade, milksolids’ prices, dairy land prices and total rural land prices are significant. Rural business cycle activity has therefore remained a remarkably dominant factor.Abstract. Establecemos ciclos clásicos de empresas, para 14 regiones de Nueva Zelanda y actividad nacional agregada. Los ciclos regionales raramente mueren con el tiempo sino que terminan con eventos específicos. Las medidas estadísticas de concordancia muestran asociaciones contemporáneas significativas entre el ciclo de Nueva Zelanda y 11 de los ciclos regionales. Más de la mitad de los co‐movimientos bi‐regionales no son significativos. La proximidad geográfica influye en el co‐movimiento entre regiones, al igual que las condiciones climáticas inusualmente secas. Ni los movimientos de precios de vivienda nacionales reales, ni los movimientos netos migratorios, muestran un co‐movimiento significativo con las fases de ciclos regionales. Para regiones clave, los movimientos en términos neozelandeses de comercio, precios de sólidos lácteos, precios de tierras para explotaciones lecheras, y total de precios de tierras de labor son significativos. La actividad del ciclo de empresas rurales ha permanecido por tanto como un factor dominante.

The Determinants of Home Price Appreciation Among Community Reinvestment Homeowners

Homeownership is considered an effective wealth creation mechanism for low-income households. This study examines the appreciation of homes purchased with community reinvestment loans in a national pilot in the USA called the Community Advantage Program (CAP). Homes purchased between 1998 and 2002 are found to have appreciated at a median annual rate of 5.4% between the time of purchase and spring 2003. This is less than the national house price appreciation index of 7.0% (covering 1998–2003) but higher than other types of investments such as the Dow Jones Index (2.78% annual growth rate) and the average rate on a 6-month CD (4.34%) over the same time period. The median increase in net housing wealth of the Community Advantage homeowners is $17 492. Returns have been particularly impressive for the lowest-income borrowers. Borrowers with less than $20 000 in annual household income at the time of purchase had a median down-payment of $1790 and have experienced a median equity increase of $24 724. Price and equity appreciation rates for African Americans are solid, but are about 10% lower than for whites.

Using State and Metropolitan Area House Price Cycles to Interpret the U.S. Housing Market

This brief examines the numerous house price cycles in states and metropolitan areas since the 1970s, drawing lessons that may be informative for analyzing and projecting national patterns. It finds that house sales volumes, new home construction, and mortgage delinquencies have provided leading indicators when a statewide house price boom was nearing an end, but that house prices have rarely decreased in the absence of a state recession. The median relationship suggests that the national OFHEO house price index could keep increasing well into 2007, given the sales and construction declines and the increases in delinquencies observed to date, and absent other factors that weaken the economy. However, the lead-lag relationships have varied considerably across states and time periods, indicating that turning points in house prices are difficult to predict precisely. Next, the brief examines the empirical relationship between metropolitan-area house prices and measures of their deviation from justifiable values, as derived from economic models. It finds that the probability of a house price decline in metropolitan areas has depended on both the extent to which housing was overvalued two to three years earlier and on changes in market fundamentals that affect housing. An extrapolation of these results suggests that national house price increases are likely to be approximately flat for the remainder of 2006. Estimates for 2007 vary, depending on assumptions regarding mortgage interest rates, personal incomes, and apartment rents, and on one's views on how such factors influence housing markets. In addition, the brief also cautions that the economic models developed to date provide only partial explanations of past house price movements. On the whole, the results can be interpreted as adding support for the view that average U.S. house prices are likely to be fairly flat in 2006 and 2007. Because house prices are subject to inexplicable movements, this conclusion should be viewed as a plausible extrapolation using historical evidence rather than a forecast. An additional caveat is that mortgage markets and other institutional factors may have changed sufficiently so as to alter the relationship between house prices and the economy compared with what existed in past cycles.

The Ups and Downs of New Zealand House Prices

This paper identifies the expansion and contraction phases of New Zealand's national and regional house prices, by employing techniques typically used to study cycles in real activity, the so-called Classical cycle dating method. We then enquire into the nature of the cycles, addressing five questions: (1) What are the New Zealand and regional house price cycles, and do the regional cycles differ from the national cycle?; (2) What are the typical durations, magnitudes and shapes of these house price cycles?; (3) Do cycles in house prices match cycles in economic activity, at either national or regional levels?; (4) Does it matter which of the two main sets of house price series are used? i.e. Quotable Value New Zealand (QVNZ) or Real Estate Institute of New Zealand (REINZ)?; and (5) Does the sample period matter? Findings are evaluated in the context of work by Grimes, Aitken and Kerr (2004), and Hall and McDermott (2005). Avenues for further research are suggested.

Regional house price behaviour in the UK: application of a joint testing procedure

The notion of a ripple effect in the UK housing market implies stationarity in regional:national house price ratios. In this paper a new means of examining this issue is proposed which involves the joint application of a powerful unit root test and a test of stationarity. In contrast to the previous studies which have failed to detect stationarity using the Dickey–Fuller unit root test, the proposed method uncovers stationarity for a number of regions. Monte Carlo evidence is presented to support and explain the empirical findings obtained. Importantly, it is found that in comparison to previously considered joint testing approaches and individual unit root tests, the proposed method dramatically reduces the frequency with which stationary series are mistakenly concluded by practitioners to possess a unit root.

Regional house price behaviour in the UK: application of a joint testing procedure

The notion of a ripple effect in the UK housing market implies stationarity in regional:national house price ratios. In this paper a new means of examining this issue is proposed which involves the joint application of a powerful unit root test and a test of stationarity. In contrast to the previous studies which have failed to detect stationarity using the Dickey–Fuller unit root test, the proposed method uncovers stationarity for a number of regions. Monte Carlo evidence is presented to support and explain the empirical findings obtained. Importantly, it is found that in comparison to previously considered joint testing approaches and individual unit root tests, the proposed method dramatically reduces the frequency with which stationary series are mistakenly concluded by practitioners to possess a unit root.

The dynamics of Swedish national and regional house price movement

In this study, the recent persistent growth of regional house price pattern in Sweden is explained by the fundamental variables and the regional distributive perspective on household income and wealth are indicated to be important to understand the different level and development of regional housing market. We also discuss the long running relationship between house prices and migration flows and highlight its critical role on house price analyses.

Regional Business Cycles in New Zealand: Do they exist? What Might Drive Them?

We use National Bank of New Zealand Regional Economic Activity data, to identify and characterise classical business cycle turning points, for New Zealand's 14 regions and aggregate New Zealand activity. Using Concordance statistic measures, logistic model and GMM estimation methods, meaningful regional business cycles have been identified and a number of significant associations established. All regions exhibit cyclical asymmetry for both durations and amplitudes, and synchronisations between aggregate NZ activity and each region are contemporaneous. The regional cycles rarely die of old age but are terminated by particular events. The regions most highly synchronised with the NZ activity cycle are Auckland, Canterbury, and Nelson-Marlborough; those least so are Gisborne and Southland. Noticeably strong co-movements are evident for certain regions. Geographical proximity matters, and unusually dry conditions can be associated with cyclical downturns in certain regions. There is no discernable evidence of association with net immigration movements, and no significant evidence of regional cycle movements being associated with real national house price cycles. The agriculture-based nature of the New Zealand economy is highlighted by the strong influence of external economic shocks on rural economic performance. In particular, there is considerable evidence of certain regional cycles being associated with movements in New Zealand's aggregate terms of trade, real prices of milksolids, real dairy land prices and total rural land prices.

THE DYNAMICS OF UK NATIONAL AND REGIONAL HOUSE PRICES

In this paper, the Johansen cointegration technique is applied to modeling the dynamics of national and regional house prices. It is concluded that household income, real mortgage rate and housing completions are significant factors influencing house price changes at the national level. The underlying structure of the national market is investigated, showing that while price trends in some regions of the UK are strongly related by causal processes, others are relatively independent

Economic shifts and the changing homeownership trajectory

Abstract From 1980 to 1988, homeownership rates declined substantially for the first time in the postwar era. They stabilized and began to creep upward during the 1988–94 period. After presenting a long‐term perspective, this article describes and examines two of the underlying forces of this upswing—demographic aging and improved levels of affordability—as well as the impact of immigration and minority lags. Fundamental economic factors are then surveyed: national and regional housing price shifts, housing production cycles, measures of housing affordability, and employment. Several key economic parameters of the post‐recession housing market are presented as a guide to the short‐term future. Post‐1988 homeownership rates initially rose because of an aging demography. But gradually, the new affordability became part of the dynamic. The new affordability was driven by the decade‐long slowdown and weakening of housing prices, lower post‐recession interest rates, and accelerated job creation following the period of “jobless” economic growth.

Equity and Nonequity Determinants of FHA Single‐Family Mortgage Foreclosures in the 1980s

We examine foreclosures on FHA single‐family mortgages insured during the 1975–87 period. The importance of the market value of borrower equity and national house price dispersion support much earlier work emphasizing the key role of negative equity in triggering default. The lower is “mean” market‐value equity, and the greater is dispersion, the greater is the fraction of borrowers likely to have negative equity. The unemployment rate and the book value of borrower equity are also shown to be significant determinants of default. Unemployment is one of those events that can force borrowers to move. The moving decision increases the likelihood of default because moving costs no longer deter default, and the costs of selling the house reduce the effective equity in the house. The book value of equity is relevant to this decision because it is what the sellers receive if they move without defaulting. Not only are both of these variables significant determinants of default, but the smaller is book equity, the greater is employment impact (with large book equity, unemployment should not matter because selling the house is preferred to default).