The International Housing Market: What Drives Prices and their Comovement?

Throughout the last 15-20 years, the international housing market has experienced very large price movements. Many countries, including Denmark, experienced increasing real house prices over the course of many years up to around 2006, after which prices fell dramatically. From a socioeconomic perspective, large price movements in the housing market are undesirable, since decreasing house prices often lead to a significant reduction in household consumption, and this in turn increases the risk of recession and destabilization of the economy; a consequence many countries have experienced in recent years. Hence, understanding the underlying causes for price movements in the housing markets is important, so that we can avoid future economic crises originating in the housing market. In light of the large house price fluctuations we have witnessed in recent years this research project aims to analyze price movements in the international housing market. Among other things, the project seeks to examine if the large price increases up to around 2006 could be due to bubbles in the housing markets, or if they could be explained by, for example, financial market liberalization. Likewise, the project will focus on the housing markets’ central role in the overall economy, analyzing whether it is possible to forecast house prices using information from financial markets and the macro-economy. The project has a strong international focus, analyzing cross-country differences and similarities as well as the degree of international integration and contagion.

The research project is supported by The Danish Council of Independent Research, grant no. DFF 4003-00022.