TY  - JOUR
AU  - Glaeser,Edward L.
AU  - Gyourko,Joseph
TI  - Housing Dynamics
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12787
PY  - 2006
Y2  - December 2006
UR  - http://www.nber.org/papers/w12787
L1  - http://www.nber.org/papers/w12787.pdf
N1  - Author contact info:
Edward L. Glaeser
Department of Economics
315A Littauer Center
Harvard University
Cambridge, MA 02138
Tel: 617/495-0575
Fax: 617/495-7730
E-Mail: eglaeser@harvard.edu

Joseph Gyourko
University of Pennsylvania
Wharton School of Business
3620 Locust Walk
1480 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6302
Tel: 215/898-3003
Fax: 215/573-2220
E-Mail: gyourko@wharton.upenn.edu
AB  - The key stylized facts of the housing market are positive serial correlation of price changes at one year frequencies and mean reversion over longer periods, strong persistence in construction, and highly volatile prices and construction levels within markets. We calibrate a dynamic model of housing in the spatial equilibrium tradition of Rosen and Roback to see whether such a model can generate these facts.  With reasonable parameter values, this model readily explains the mean reversion of prices over five year periods, but cannot explain the observed positive serial correlation at higher frequencies.  The model predicts the positive serial correlation of new construction that we see in the data and the volatility of both prices and quantities in the typical market, but not the volatility of the nation's more extreme markets.  The strong serial correlation in annual house price changes and the high volatility of prices in coastal markets are the two biggest housing market puzzles.  More research is needed to determine whether measurement error-related data smoothing or market inefficiency can best account for the persistence of high frequency price changes.  The best rational explanations of the volatility in high cost markets are shocks to interest rates and unobserved income shocks.
ER  -