We explore the dynamics of real house prices…from a panel data set of 62 metro areas from 1979-1995. Serial correlation is higher in metro areas with higher real income, population growth and real construction costs. [Return to normal housing price levels after booms and busts] is greater in large metro areas and faster-growing cities with lower construction costs. Empirically, substantial overshooting of prices can occur in high real construction cost areas, which have high serial correlation and low [returns to normal price levels], such as the coastal cities of Boston, New York, San Francisco, Los Angeles and San Diego.
Dennis R. Capozza, Patric H. Hendershott, Charlotte Mack, and Christopher J. Mayer