Price dynamics in public and private housing markets in Singapore

In down-payment constrained housing consumption models, increases in house prices could trigger household mobility decisions in housing markets. This study empirically tests house price dynamics associated with the mobility of households in the public resale and private housing markets in Singapore. The results show that stochastic permanent breaks were found in the public housing resale prices and private housing prices. The relative prices drift apart occasionally, but mean-revert to a long-run fundamental equilibrium. Error correction mechanisms and lagged public housing prices were also found to have significant explanatory effects for price changes in the private housing markets. The results support the hypothesis that household mobility creates co-movements of prices in public and private housing submarkets in the long run.