Exploring Metropolitan Housing Price Volatility
Springer Science Business Media, LLC 2006
Abstract This paper uses GARCH models and a panel VAR model to analyze
possible time variation of the volatility of single-family home value appreciation and
the interactions between the volatility and the economy, using a large quarterly data
set that covers 277 MSAs in the U.S. from 1990:1 to 2002:2. We ﬁnd evidence of time
varying volatility in about 17% of the MSAs. Using volatility series estimated with
GARCH models, we ﬁnd that the volatility is Granger-caused by the home
appreciation rate and GMP growth rate. On the other hand, the volatility Granger-
causes the personal income growth rate but the impact is not economically signiﬁcant.
Keywords Home value appreciation
Housing price volatility
This paper studies possible time variation of housing price volatility, as well as
determinants and impact of the volatility.
The housing market is an important
component of the economy, and its risk is among the largest economic risks faced by
individuals, as Shiller (1998) argues.
In fact, more than half the assets of middle-
class American families are in the form of housing,
and the effects of housing on
J Real Estate Finan Econ (2006) 33: 5–18
N. Miller (*)
Department of Finance and Real Estate,
College of Business, University of Cincinnati,
PO Box 210195, Cincinnati, OH 45221- 0195, USA
Department of Finance, Leeds School of Business,
University of Colorado at Boulder,
419 UCB, Boulder, CO 80309-0419, USA
The housing price volatility in this paper is deﬁned as the variance of the unpredictable
component of the home value appreciation rate.
The total value of owner occupied housing has exceeded 13 trillion dollars by the start of 2003
according to the Federal Reserve, and is comparable to the total value of the stock market and the
gross domestic product in the same period.
See Campbell and Cocco (2003).