Negative house price co-movements and US recessions

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Abstract

We investigate the relation between large negative house price co-movements in the cross-section of US cities and the national business cycle. The occurrences of large negative house price co-movements across cities cluster over time and these clusters are closely linked to NBER recession dates. A simple co-movement measure that aggregates large negative city-level house price returns reliably predicts future recession periods. Weighting cities according to population or GDP when constructing the negative co-movement variable yields the largest forecasting power, indicating that larger cities that contribute more to the national GDP are more influential in terms of correctly signalling future recessions. Moreover, large negative house price co-movements contribute above and beyond traditional recession predictors, suggesting an important role for city-level housing information as an early warning indicator.
Original languageEnglish
JournalRegional Science and Urban Economics
Volume77
IssueJuly
Pages (from-to)382-394
Number of pages13
ISSN0166-0462
DOIs
Publication statusPublished - Jul 2019

Keywords

  • Business cycles
  • Co-movements
  • Housing
  • Negative returns

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