International Real Estate Review

This paper uses the house price indices of 20 metropolitan statistical areas (MSAs) across the United States from January 1991 to April 2018 to analyze the dynamic connectedness of the housing markets in these MSAs. By estimating the connectedness of the entire sample before, during, and after the subprime mortgage crisis, this paper compares the changes in the impact of each regional housing market in the abovementioned MSAs during the stated time period. The results show that housing markets in west coast MSAs are the most influential, and the spatial distribution of this influence is affected by the subprime mortgage crisis because, compared to other periods, the fewest MSAs have a positive net impact during the crisis period and are found along the coast. The influence of the west coast cities increases after the subprime mortgage crisis compared to that before the crisis, probably because the house prices in these cities recover more quickly. In addition, an increase in connectedness represents more systematic risks and also influences the connectedness of the housing markets with other financial markets. The results of this paper also indicate that if the Federal Reserve uses monetary policies to interfere with the housing market, this might increase the default risks of the entire housing market across the United States, and a financial crisis from the spread of default risks might ensue. By discussing the linkage of the regional housing markets across the United States, we provide another warning indicator for the risks of housing markets, risks linked to other financial markets, and uncertainty risks for the overall economy.