Final draft: October 2019
Cyclical synchronization of home prices has important implications for monetary (and other) policies. Regional house price divergence, even over a business cycle, can inhibit labor mobility and prevent workers from moving to where they could add most to their own wages and overall growth. We study house price co-movement across the different UK regions with a method, that, unlike previously employed techniques, allows for time-varying estimates. We find first, that the UK exhibits more home price divergence compared to previously reported results for the US. Second, regions near London exhibit the most co-movement, and those further from London the most divergence. Third, London itself is in the “middle of the pack” in terms of synchronization compared to other regions. This may reflect London’s status as a “global city” and being the destination for housing demand from sources abroad. Lastly, segmentation has clearly been increasing, rather than decreasing in recent years.