Five Themes of U.S. Home Price Cycles: A Dynamic Modelling Approach

After the Global Financial Crisis, the U.S. housing market has been studied extensively from several dimensions to assess the causes for the price crash during 2007–2012. In this paper, we formulate five hypotheses about the behavior of housing prices and introduce two important innovations: first we extend the sample period, from January 1987 to August 2023, to assess whether the common determinants that drove housing prices during the GFC also moved housing dynamics during the essentially zero interest rate and pandemic periods. Second, we formulate five hypotheses and employ a dynamic econometric modelling approach to empirically investigate the drivers of house prices. The hypotheses proposed address the macroeconomic business cycle environment, monetary policy, the global saving glut, the fundamentals of the housing market, and housing momentum. We find that most of the independent variables in our hypotheses are statistically significant except for momentum. We conclude that several economic variables have driven the housing market during the past 36 years but with differing impact across sub-periods.