House Prices and Economic Growth

Using quarterly data for all 379 metropolitan statistic areas (MSAs) in the U.S. from 1980:1 to 2008:2, this paper empirically studies the effect of house prices on local Gross Metropolitan Product (GMP). We compare the effects of predictable and unpredictable house price changes, which we use to ca...

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Bibliographic Details
Published in:The journal of real estate finance and economics 2011-05, Vol.42 (4), p.522-541
Main Authors: Miller, Norman, Peng, Liang, Sklarz, Michael
Format: Article
Language:English
Subjects:
Access to credit
Borrowing
Consumption
Decomposition
Economic conditions
Economic growth
Economics
Economics and Finance
Financial Services
Households
Housing
Housing prices
Literature reviews
Price differentiation
Price expectations
Real estate market
Recessions
Regional/Spatial Science
Studies
U.S.A
Wealth effect
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Summary:Using quarterly data for all 379 metropolitan statistic areas (MSAs) in the U.S. from 1980:1 to 2008:2, this paper empirically studies the effect of house prices on local Gross Metropolitan Product (GMP). We compare the effects of predictable and unpredictable house price changes, which we use to capture the collateral and wealth effects of house prices respectively. We further analyze the relationship between the effects and household borrowing constraints, as well as the temporal pattern of the effects. Our analysis provides the following findings. First, house price changes have significant effects on GMP growth, and the effect of predictable changes (the collateral effect) is about three times stronger than the effect of unpredictable changes (the wealth effect). Second, the persistent component of predictable changes has a stronger collateral effect than the novel component. Third, when households are more financially constrained, the collateral effect is stronger, the wealth effect is weaker, and the total effect remains unchanged. Finally, the effects last for eight quarters, and peak on the fourth quarter after house price changes take place.
ISSN:0895-5638
1573-045X
DOI:10.1007/s11146-009-9197-8