This paper analyzes the duration of house price upturns and downturns in the last 40 years for 19 OECD countries. I provide two sets of results, one pertaining to the average length and the other to the length distribution. On average, upturns are longer than downturns, but the difference disappears once the last house price boom is excluded. In terms of length distribution, upturns (but not downturns) are more likely to end as their duration increases. This duration dependence is consistent with a boom-bust view of house price dynamics, where booms represent departures from fundamentals that are increasingly difficult to sustain. National house prices went through an unprecedented and synchronized rise across OECD countries in the years preceding the Great Recession (Girouard et al., 2006). Many of those countries are now experiencing a violent decline. In Spain, the U.S., and Ireland, prices are down 20, 32, and 38 percent from their peaks, respectively. 2 While the magnitude of these changes is exceptional, the fact that house prices go through ups and downs is not. Referring to the U.S. housing market, Himmelberg et al. (2005) write that “Over the last quarter century, run-ups in house prices are common, but so are subsequent declines. The national average real house price fell by 7.2 percent from 1980 to 1982; rose by 16.2 percent from 1982 to 1989; fell by 8 percent from 1989 to 1995; and then rose by 40 percent from 1995 to 2004.” Available historical records show that this recurring sequence of house price expansions and contractions has been a constant feature of industrial economies at least since the 17th century.
In this paper, I analyze 40 years of housing cycles in 19 OECD countries and concentrate on one specific characteristic: duration. This focus has two motivations. First, policymakers have an interest in knowing how long a house price expansion (contraction) is expected to last. If historical regularities exist, the awareness of these regularities makes forecasting a little less difficult. Second, researchers put a lot of effort in constructing theoretical models able to generate the cyclical house prices observed in the data. A more exact characterization of these empirical patterns will contribute to our understanding of the functioning of housing markets.