Co‐movement of house price cycles – a factor analysis

Because of globalisation and monetary integration the macroeconomic conditions for industrial countries have become more and more equal. This paper aims to discover whether the synchronisation of business cycles also affected the co‐movement of house prices in OECD countries for the period 1990 to 2010.

Using a factor analysis the degree of co‐movement of house price cycles is measured. Additionally, by splitting the sample whether housing markets have become more integrated since the 1990s can be assessed.

The results show that the integration of housing markets has accelerated in the last decade. Both a strong global factor and a regional factor can be identified. However, some countries, such as Germany, The Netherlands and Japan, seem to have become uncoupled from the global trend. Furthermore, the co‐movement of markets generally increases with greater proximity. Although globalisation seems to foster the integration of housing markets, monetary integration has only a minor effect. For investors, hence, there is still scope for risk reduction in international housing markets.

This is the first paper to adress the co‐movement of house price cycles for a large set of countries. Furthermore, it proposes a new way to illustrate the results by referring to methods well‐known from cluster analysis.