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Clustered Housing Cycles


Using a panel of U.S. city-level building permits data, we estimate a Markov-switching model of housing cycles that allows for idiosyncratic departures from a national housing cycle. These departures occur for clusters of cities that experience simultaneous housing contractions. We find that cities do not form housing regions in the traditional geographic sense. Instead, similarities in factors affecting the demand for housing (such as average winter temperature and the unemployment rate) appear to be more important determinants of cyclical comovements than similarities in factors affecting the supply for housing (such as housing density and the availability of developable land).

Keywords: clustered Markov switching, business cycles, building permits, comovements.

JEL codes: E32; R31; C11; C32.


Suggested citation: Hernandez-Murillo, Ruben, Michael T. Owyang, and Margarita Rubio, 2015. "Clustered Housing Cycles," Federal Reserve Bank of Cleveland, working paper no. 15-24.

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