Trend properties, cointegration, and diffusion of presale house prices in Taiwan: Can Taipei's house prices ripple out?

•The trends in presale house prices in Taiwan's major urban areas are stochastic.•Taipei's house prices can affect those in other major urbanized areas in Taiwan.•Taipei and Kaohsiung are leaders in long-run house price movements.•House price changes among Taiwan's major urban areas are interdependent.

This study, which is the first to apply Vogelsang's (1998) t-PST1 test, shows that trends in presale house prices in Taiwan's largest urban areas are stochastic. Contrary to previous studies, this study's cointegration analysis clearly demonstrates that Taipei is not isolated from long-run price trends. Furthermore, as indicated by weak exogeneity tests, both Taipei and Kaohsiung are long-run leaders in house prices. Moreover, Granger causality test results reveal a strong lead-lag interdependence of house price changes among Taiwan's largest urban areas. These findings have important implications for housing policymakers, mortgage lending institutions, and property investors.