Vector-autoregressive models are used to decompose housing returns in 18 OECD countries into cash ‡ow (rent) news and discount rate (return) news. Only for two countries - Germany and Ireland - do changing expectations of future rents play a dominating role in explaining housing return volatility. For the majority of countries news about future returns is the main driver, and both real interest rates and risk premia play an important role in accounting for housing market volatility. Bivariate cross-country correlations and principal components analyses indicate that part of the return movements have a common factor among the majority of countries. However, in a minority of countries (Germany, Japan, and the Netherlands) return movements have been basically unrelated to return movements in other countries.
