Ripple effect in house prices and trading volume in the UK housing market: New viewpoint and evidence

- This paper explains why the ripple effect occurs in housing market price and volume.
- This paper uses static and cobweb dynamic models to explain.
- The empirical study uses panel-based unit root tests.
- This paper constructs the diverging indicators for observing the housing market adjustment behavior.
- This paper shows the ripple effect in the housing market is likely to be underestimated.

This study adopts the data of house prices and trading volume in the overall UK housing market and in the housing markets in the 10 major regions in the UK to estimate the ripple effect in the trading activities in the housing markets. First, this study details why the ripple effect occurs in the housing market price and volume using static and cobweb dynamic models. The results of the panel-based unit root tests indicate that the relative price and volume ratios show constancy, signifying that long-run equilibrium relationships exist between the regional and national housing markets in the UK. The frequency of the transaction volume convergence behavior is higher than that of the overall house prices.