Large price movements in housing markets

This paper examines large price run-ups with potential subsequent crashes and large price declines with potential subsequent rebounds in state-level and metropolitan-area-level housing markets in the U.S. over the past 40 years. We find that a sharper run-up in house prices predicts a higher probability of a crash, but a sharper decline does not necessarily predict a higher probability of a rebound. Changes in the effective interest rate in the local market can predict housing returns following large price run-ups, while it is harder to use the same factors to predict returns following large price declines. Such characteristics are robust to different thresholds of price movements. (C) 2019 Elsevier B.V. All rights reserved.