## Foreign Demand and Local House Prices: Evidence from the US

_IMF Working Papers, February 28, 2020_

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**Canonical URL:** [Foreign Demand and Local House Prices: Evidence from the US](https://www.imf.org/en/publications/wp/issues/2020/02/28/foreign-demand-and-local-house-prices-evidence-from-the-us-49028)

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## Bibliographic details
- Authors: Damien Puy, Anil Ari, Yu Shi
- Published: February 28, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513529264.001

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### Research question and identification strategy
- Research question: Do foreign demand shocks affect local house prices in the US?
- Identification strategy: Exploits the existence of “home bias abroad” in international real estate markets; uses an extreme political crisis event abroad as a proxy for a strong and exogenous shift in foreign demand.
- Key empirical comparison: Changes in house prices across neighbourhoods with varying concentrations of population originating from the crisis country.

### Key findings
- House prices rise disproportionately more in neighbourhoods with a high concentration of population originating from the crisis country following the crisis event.
- The effect is described as strong and persistent.
- Robustness: The effect remains robust to the exclusion of major cities.
- Cross-sectional pattern:
  - Areas that were already expensive in the late 1990s experienced the strongest foreign demand shocks.
  - Those same areas saw the biggest drop in affordability between 2000 and 2017.
- Overall inference: Evidence suggests a non-trivial causal effect of foreign demand shocks on local house prices over the last 20 years, especially in neighbourhoods that were already rather unaffordable for the median household.

### Subject matter and keywords
- Subjects: Foreign currency exposure, Housing, Housing prices, Money, National accounts, Population and demographics, Prices, Real estate prices
- Keywords include: Capital Flows, Foreign currency exposure, foreign demand shocks, Global, house price, House Prices, Housing, housing affordability, housing boom, Housing prices, interaction term, Political Risk, Real estate prices, time series, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2020/02/28/foreign-demand-and-local-house-prices-evidence-from-the-us-49028_