Refereed Publications

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    The home price-income relationship for US states
    (Routledge, 2023-05-07) Miles, William; Jung, Samuel Moon; Vijverberg, Chu-Ping Chen
    There are conflicting theories on whether house prices and income should share a long-run relationship. Empirical work on the topic has yielded mixed results. Most previous studies have investigated whether the house price/income ratio is stationary (short memory) or non-stationary (has a unit root) but have not allowed for the intermediate possibility of long memory or fractional integration. We estimate fractional integration for the house price/income ratio for US states. We find most states exhibit long memory in their ratios. The states with the most long memory tend to be in the high-priced east coast and California. Southern and great plains states, in contrast, tend to exhibit the least persistence in the house price/income metric. In some housing markets ? some east coast states, California, Arizona, Florida, and Nevada, home costs can become less and less affordable for local residents, with no tendency to reverse this unaffordability within a reasonable time horizon for potential buyers. In addition to the univariate estimates, multivariate fractional cointegration tests are implemented, and the results support the findings of non-affordability hypothesis.
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    Housing and the changing impact of monetary policy
    (Elsevier Ltd, 2023-07-01) Miles, William; Zhu, Xiaoyang
    Housing is the leading indicator of the business cycle. The impact of monetary policy on housing has thus unsurprisingly been the subject of numerous studies. Some have also investigated whether the impact of monetary policy has changed since the mid-1980s. These papers to date have relied on vector-autoregressions (VARs). To avoid some of the specification issues of VARs, we employ the local projection method. We find a clear effect of monetary shocks on housing variables over the entire sample. However, we also find that over the great moderation of 1983-2008, there is no significant impact of policy shocks on either home prices or investment. Moreover, as the difference between the estimated impact of monetary policy on GDP before and during the great moderation was not as large as the same difference for residential investment, we infer that changes to housing finance, rather than simply more stable monetary policy, deserve some credit for the lesser impact of Fed shocks. Finally, we find that during the zero lower bound years spanning 2009-2020, unconventional monetary policy (UMP) appears to have had a palpable impact on the housing sector. This result is consistent with previous findings on the effectiveness of UMP.
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    Regional house price co-movement in the USA: the medium cycle is not the business cycle
    (Springer Nature, 2022-08-02) Miles, William
    Co-movement in different regional housing markets has implications for portfolio management, as well as the effectiveness of monetary and other policies. Such co-movement has thus been the subject of several previous studies. Research on regional house price cohesion has tended to focus either on long-run convergence to a common level or on business cycle synchronization. While the extent of both types of relationships is important, research on national housing, credit and equities has established the salience of co-movement at the intermediate frequency, or of medium cycles. Indeed, at the national level, medium cycles in housing and credit together have been shown to characterize the financial cycle. Research on the UK has found that regional house price co-movement is different at business versus medium cycle frequencies. In this paper, we examine co-movement of house prices across the regions of the USA. We compare co-movement at the business and medium cycle frequencies. We find that medium cycles are more volatile than short-term fluctuations, making medium-term movements more important for housing. Moreover, house price synchronization across regions is for the most part greater at the medium than the short-term frequency. There did appear to be an increase in co-movement around the time of the early 1990s recession, although this was not sustained for all regions or all frequencies. Lastly, while short-term synchronization has been declining among the regions of the US housing market, medium co-movement appears to be rising over the last several decades.
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    Scottish home prices: Compatible with Euro membership?
    (Universita Carlo Cattaneo, 2021) Miles, William
    Although the Scottish electorate voted down independence in 2014, Brexit has led to renewed calls from Scottish political leaders for a second referendum. Scottish independence would likely lead to joining the European Union, and this would obligate Scotland to eventually join the euro common currency. If Scottish home prices were not highly cohesive with those in euro zone countries, the ECB’s monetary policy could cause major disruptions for Scottish housing, and, by extension, the Scottish economy. As an example, if most euro-country home values were rising, but those in Scotland were falling, the ECB would likely run a tight monetary policy, which would be devastating to housing conditions in Scotland. We accordingly investigate the co-movement of house prices in Scotland with those in eight major euro zone countries, as well as co-movement between Scottish and UK home prices, using a variety of metrics. The use of methods that are primarily linear indicates that joining the euro may not result in a large loss of co-movement with other regional housing markets, compared to Scotland’s current correlation with UK national home prices. However, the use of a measure that takes into account differences in the magnitude, and not just the phase of cycles yields results indicating Scotland exhibits very little co-movement with other euro housing markets. Indeed Scotland has comovement metrics within the euro countries at levels similar to those of Spain and Ireland, which both suffered devastating booms and busts. Thus leaving sterling for the euro could be highly problematic.
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    The dynamics of house prices and income in the UK
    (Global Social Science Institute, 2020) Miles, William
    Asset prices and fundamentals can move apart, as is the case during bubble episodes. However, they should exhibit a stable relationship in the long run. For UK housing, previous studies have investigated whether house prices share a long run relationship with income. Results thus far have not yet found such stability in the interaction of the two variables. These previous papers have imposed linear adjustment on the relationship. Nonlinear adjustment, however, has been shown to be a feature in a number of housing market relationships. In this study, we utilize a data set that consists of home prices relative to first time buyer income for the UK and its twelve constituent regions, which gives us a direct measure of affordability. We test for the stationarity of the home price/first time buyer income ratio with linear tests, and, as in past studies, fail to find a long run relationship. However, we then employ a nonlinear test, and find a stationary relationship for the UK and seven of the twelve regions. In particular, the regions closest to London appear most clearly to have a stationary relationship between home prices and income.