Price Jump Risk in the US Housing Market
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Housing prices, like the prices of other speculative assets, contain a mix of both small and large changes (i.e., jumps). We apply a jump-GARCH model to monthly Case-Shiller housing price indexes of twenty cities in the U.S. during the period January 1991 through December 2011. We document the evidence of large housing price jumps in many cities, during both the financial crisis and non-crisis periods. The housing price jump intensity observed during the whole sample is largely explained by city, state and national-level fundamentals. However, consistent with the development of an asset bubble, there is further evidence of a decoupling between housing price jump intensity and fundamentals during the active or turbulent phase of the U.S. housing market that immediately preceded the onset of the Global Financial Crisis. No evidence of a decoupling from fundamentals is observed during the normal or tranquil phase of the U.S. housing market.
KeywordsHousing price index Jump intensity Economic fundamentals
JEL ClassificationsR30 C58
We gratefully acknowledge helpful comments on earlier versions from session participants at the 2013 American Real Estate Society annual meetings and particularly two anonymous referees. An earlier version of this paper was awarded the 2013 American Real Estate Society Best Paper Award in Real Estate Investments.
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