U.S. house prices by census division: persistence, trends and structural breaks

Abstract

This paper uses fractional integration methods to examine persistence, trends and structural breaks in United States house prices, more specifically the monthly Federal Housing Finance Agency House Price Index for census divisions, and the United States as a whole over the period from January 1991 to August 2022. The full sample estimates imply that the order of integration of the series is above one in all cases, and is particularly high for the aggregate series, implying high levels of persistence. However, when the possibility of structural breaks is taken into account, segmented trends are detected. The subsample estimates of the fractional differencing parameter tend to be lower, with mean reversion occurring in a number of cases. This means that shocks in the series are expected to be transitory in these subsamples, disappearing in the long run by themselves. In addition, the time trend coefficient is at its highest in the last subsample, which in most cases starts around May 2020 coincident with the beginning of the coronavirus pandemic. The results provide clear evidence of differences between census divisions, which implies that appropriate housing policies should be designed at the local (rather than at the federal) level.