Housing Price Fundamentals through the Business Cycle

  • Michael G Wenz Northeastern Illinois University and Politechnika Czestochowa
  • William Wei-Choun Yu Anderson Forecast, Anderson School of Management, University of California-Los Angeles
Keywords: Housing, Real Estate, House Price Forecasting

Abstract

We examine the fundamental determinants of nominal home price growth from 1995 to 2012 across 300 metropolitan areas in the U.S. This sample period provides a trough-to-trough time period that allows for analysis through a complete business cycle.  By using a supply-to-demand ratio for home price appreciation, we identify a straightforward and powerful method for predicting home price appreciation across markets.  We suggest an alternative and simple method for addressing endogeneity in house prices and include a comprehensive measure of human capital.  We find five significant factors: home supply growth, personal income growth, human capital, an ocean dummy, and geographic constraint. 

Author Biographies

Michael G Wenz, Northeastern Illinois University and Politechnika Czestochowa
Associate Professor, Department of Economics, Northeastern Illinois University and Visiting Professor, Faculty of Management, Politechnika Czestochowa
William Wei-Choun Yu, Anderson Forecast, Anderson School of Management, University of California-Los Angeles
Economist, UCLA Anderson Forecast

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Published
2016-12-30
Section
Articles