Financial Crisis and the Co-movements of Housing Sub-markets: Do relationships change after a crisis?

Abstract

This study of the co-movements of transaction prices and trading volumes reveals that the mean correlation of prices and trading volumes alike, among different housing sub-markets, increase during the market boom. After a financial crisis, the correlations dramatically drop and stay low. The distribution of the correlations changes from skewed to symmetric. All these coincide with the increase in the total variance of prices, as well as the share of the idiosyncratic component in the total variance after the crisis. These findings are consistent with a family of theories that emphasize on the “regime switch” in expectations.
 

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Keywords

Financial Crisis; Hedonic Pricing; Structural Break; Evolution of Valuation; Rolling Regression

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