Housing Cycles Have Lengthened
Alexandria, VA, August 31,
2015—Housing market pricing cycles—normal, boom and
bust phases—have become longer over the last four decades, according to statistical
analysis of data from 20 industrial countries covering the period 1970 to 2012.
the analysis recently were included in an article in the Journal of Business
& Economic Statistics, a professional journal published by the American
Statistical Association. The study was conducted by Luca Agnello, University of
Palermo (Italy); Vitor Castro, University of Coimbra (Portugal); and Ricardo M.
Sousa, University of Minho (Portugal).
also found that longer down phases can have dire consequences on national and
international economies. While relatively short-lived housing booms tend to
deflate, more prolonged booms are likely to spiral out of control. Similarly,
compared to short housing busts, longer housing busts are more likely to turn
into chronic slumps and, ultimately, lead to severe recessions.
study findings follow.
Housing price booms and busts—and
even normal phases—tend to be longer when the previous cycle, no matter the
type, is long.
Housing price booms are broadly
similar in terms of length in European and non-European countries, but pricing
busts are typically shorter in European countries.
There is a positive duration
dependence in the housing market price booms of European and non-European
countries, while the housing price busts in non-European countries do not seem
to be duration dependent.
The results corroborate the
existence of a time-varying duration dependence parameter for housing booms and
busts. Housing booms and busts that last fewer than 26 quarters display
positive duration dependence, but the same does not hold for older events. For
example, when housing booms or busts have a duration shorter than 26 quarters,
each additional quarter of duration—on average—increases the likelihood of the
end of such stages of the cycle by four percentage points. In contrast, for
housing booms or busts longer than 26 quarters, each additional quarter of
duration raises the likelihood of their end by only 1.76 percentage points. For
normal times, no evidence of change-points is found.
conclude the study's findings support preventive policy interventions by
governments during periods of boom and bust. A timely counter-cyclical policy
response before housing booms and busts reach 26 quarters on average is
crucial, they say, for avoiding large and persistent housing price swings and
for hastening the return of the housing market cycle to a normal phase.