Revisiting metropolitan house price-income relationships

We explore long-term patterns of the house price-income relationship across the 70 largest U.S. metropolitan areas. In line with a standard spatial equilibrium model, our empirical findings indicate that house price-income ratios are typically not stable even over the long run. In contrast, panel regression models that relate house prices to aggregate personal income and allow for regional heterogeneity yield stationary long-term relationships in most areas. The relationship between house prices and income varies significantly across locations, underscoring the importance of using estimation techniques that allow for spatial heterogeneity. The substantial differences across metropolitan areas are closely related to the price elasticity of housing supply