Investigating Momentum Effects in Home Prices: Evidence from Transaction-Level Data in South Korea

This study investigates momentum effects in South Korea’s housing market using a unique monthly transaction-level dataset covering seven major metropolitan areas from 2010 ton 2023. We employ a Bayesian hierarchical model that captures regional heterogeneity at both the city and district levels. The results reveal that while the national average momentum effect is mean-reverting, certain regions, most notably Seoul, exhibit relatively strong, localized positive momentum in housing price changes. These findings challenge the blanket applicability of momentum effects and highlight the spatial complexity of housing market dynamics. We further simulate momentum-based investment strategies under realistic market friction, including capital gains taxes, transaction fees, and short-selling constraints. These strategies consistently yield negative or negligible returns, suggesting that existing institutional frictions act as effective brakes for speculative behavior. From a policy perspective, our findings underscore the need for regionally tailored interventions that reflect local market conditions rather than relying on one-size-fits-all approaches.