Abstract
Santa Clara County has recently had the highest house prices of any large housing market in the nation. Part of the explanation lies in the extraordinarily low user cost of housing caused by the interaction of high incomes and the tax deductions available to homeowners. But this article also evaluates whether changes in stock wealth have been responsible for the recent increase in housing prices in Santa Clara County.
Although three different stock market measures add explanatory power to a model of housing prices in the region, none of these indexes predicts the housing price increases seen in 1999 and 2000. In fact, the within‐sample models have .R‐squares of only 0.22, and even the best model (based on the Standard & Poor's 500) does not forecast well out of sample. Still, the market is unusual in that stock prices seem to have some impact on house prices.
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