Co‐movement of house price cycles – a factor analysis

Abstract

Due to globalisation and monetary integration the macroeconomic conditions for industrial countries have become more and more equally.Based on a factor analysis we examine if the synchronisation of business cycles also affected the co-movement of house prices in OECD-countries for the period of 1990 to 2010. As it turns out, the integration of housing markets has accelerated in the last decade. We can identify a strong global factor as well as a regional factor. However, some countries like Germany, the Netherlands and Japan seem to be uncoupled from the global trend.Furthermore, the co-movement of markets with greater proximity is generally stronger. Although globalisation seems to foster the integration of housing markets, monetary integration has only a minor effect. We illustrate our results by referring to methods well-known from cluster-analysis.

Medium-term cycles and housing: Is regional integration different?

“…With the notable exceptions of NI's and London's, dissimilarly values in Table 3 in the medium-term range (column 2) are lower than at the business cycle's (6), pointing to housing market integration being driven by finance, as Pomogajko & Voigtländer (2012) argue, but in the narrower range of cycles than Meller & Metiu (2017) and Drehmann et al (2012) explore.…”

“…This co-cyclicality has been found using different methods in the business cycle range. For example, Pomogajko & Voigtländer (2012) find housing markets are integrated across OECD countries. Using factor analysis of the detrended series, they find a strong global (latent) factor during the two decades from 1990.…”

“…Drehmann et al (2012) conclude that there is well-defined financial cycle that is best characterised by the co-movement of medium-term cycles in credit and property prices. As there is evidence that finance drives the synchronisation of national housing markets (Pomogajko & Voigtländer, 2012;Helbling & Terrones, 2003), which should apply to regions also, it raises the possibility that a financial channel may present a different map of housing market integration to traditional house price overspill models. These focus on labour market accommodation of spatial inequalities finding that the UK is segmented (Meen, 1999).…”

An international housing market in the British Isles: Evidence from business and medium-term cycles using a Friedman test

“…However, ‘structural breaks’, resulting from bubbles (Gregoriou et al, 2014), make results subject to date-selection issues and to the number of breaks identified. Markets defined by one common or a collection of convergent cycles (inter alia, Crone, 2005; De Haan et al, 2008; Pomogajko and Voigtländer, 2012) assessed by cluster analysis, correlation and principal components analysis, encounter fluctuating relationships that, if asynchronous, can be underestimated. A less restrictive ‘similarity in shape’ (Aghabozorgi et al, 2015) criterion could reveal more integration than other approaches.…”

“…It has been averred that there is an international market in housing (inter alia, Adams and Füss, 2010; Helbling and Terrones, 2003; Pomogajko and Voigtländer, 2012). The mechanisms by which this comes about are more likely to reflect financial markets than the flows of labour or trade.…”