Despite having abundant literature blaming a faulty financial system and exuberant price expectations as the primary causes of housing bubbles, there is a lack of research that looks at the impact of house price instability on the economy. This study aims to fill this gap by thoroughly examining the connection between house prices and economic output, and the effect of house price volatility on economic stability. Drawing from long-spanning quarterly data from 17 OECD countries from 1970 to 2019, the study develops and tests economic growth and volatility models to uncover significant insights. The empirical results show that house price returns have a significant asymmetric impact on economic growth, with negative returns having twice the effect of positive ones. Moreover, the results indicate that house price volatility significantly contributes to economic instability. In light of these findings, the paper concludes with valuable policy recommendations to enhance the housing market and improve overall economic stability. This study provides a compelling argument for the importance of closely monitoring and regulating the real estate market in order to maintain a healthy and stable economy.
Keywords: Asymmetric effects; Economic growth; House prices; OECD countries; Output volatility; Price volatility.
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