Regional House Price Segmentation and Convergence in the US: A New Approach

This paper investigates the extent of regional integration (or, conversely, segmentation) in US home values. In contrast to some previous studies, we examine the degree of integration in the US with a data set which runs into 2012 and thus captures the latest period of bubble and bust, and employing a recently developed set of tools which yield estimates which are 1) time-varying, and 2) account for differences not just in correlation but also in amplitude between different housing markets. Our results indicate that contrary to some previous findings, overall integration in the US was falling, not rising over the early years of the bubble (2001-05). This lends some credence to the "lots of local bubbles" conjecture of Greenspan that the early stages of the bubble reflected froth in some individual markets, rather than a large underlying national bubble. However, the late stages of the bubble exhibit a very sharp rise in integration, so the later bubble and subsequent bust likely reflected national (or global) factors. Finally we find substantial variation across regions in terms of how integrated they tend to be. This comports with previous findings on the low level of integration of regional income in the US, and the ability of home values to maintain substantial segmentation makes the use of housing in monetary policy problematic.