DP10295 Banking Integration and House Price Comovement

Author(s): Augustin Landier, David Sraer, David Thesmar
Publication Date: December 2014
Keyword(s): banking deregulation, comovement, real estate
JEL(s): G10, G21, R30
Programme Areas: International Macroeconomics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10295

The correlation across US states in house price growth increased steadily between 1976 and 2000. This paper shows that the contemporaneous geographic integration of the US banking market, via the emergence of large banks, was a primary driver of this phenomenon. To this end, we first theoretically derive an appropriate measure of banking integration across state pairs and document that house price growth correlation is strongly related to this measure of financial integration. Our IV estimates suggest that banking integration can explain up to one third of the rise in house price correlation over the period.