Housing Market Spillovers: Evidence from an Estimated DSGE Model

TLDR

The study investigates the sources and effects of US housing market fluctuations. The authors find that slow housing‑sector technological progress drives the long‑term price rise, while demand and technology shocks each account for about a quarter of investment and price volatility, monetary factors play a smaller but growing role, and housing‑market spillovers are significant, consumption‑focused, and increasing over time. JEL codes: E23, E32, E44, O33, R31.

Abstract

We study sources and consequences of fluctuations in the US housing market. Slow technological progress in the housing sector explains the upward trend in real housing prices of the last 40 years. Over the business cycle, housing demand and housing technology shocks explain one-quarter each of the volatility of housing investment and housing prices. Monetary factors explain less than 20 percent, but have played a bigger role in the housing cycle at the turn of the century. We show that the housing market spillovers are nonnegligible, concentrated on consumption rather than business investment, and have become more important over time. (JEL E23, E32, E44, O33, R31)