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  • Pavlidis_etal2015

    Rights statement: The final publication is available at Springer via http://dx.doi.org/10.1007/s11146-015-9531-2

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Episodes of exuberance in housing markets: in search of the smoking gun

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<mark>Journal publication date</mark>11/2016
<mark>Journal</mark>Journal of Real Estate Finance and Economics
Issue number4
Volume53
Number of pages31
Pages (from-to)419-449
Publication statusPublished
Early online date18/09/15
Original languageEnglish

Abstract

In this paper, we examine changes in the time series properties of three widely used housing market indicators (real house prices, price-to-income ratios, and price-to-rent ratios) for a large set of countries to detect episodes of explosive dynamics. Dating such episodes of exuberance in housing markets provides
a timeline as well as empirical content to the narrative connecting housing exuberance to the global 2008 - 09 recession. For our empirical analysis, we employ two recursive univariate unit root tests recently developed by Phillips et al. (2011) and Phillips et al. (2015). We also propose a novel extension of the test developed by Phillips et al. (2015) to a panel setting in order to exploit the large cross-sectional dimension of our international dataset. Statistically significant periods of exuberance are found in most countries. Moreover, we find strong evidence of the emergence of an unprecedented period of exuberance
in the early 2000s that eventually collapsed around 2006 - 07, preceding the 2008 - 09 global recession. We examine whether macro and financial variables help to predict (in-sample) episodes of exuberance in housing markets. Long-term interest rates, credit growth and global economic conditions are found to be among the best predictors. We conclude that global factors explain (partly) the synchronization of exuberance episodes that we detect in the data in the 2000s.

Bibliographic note

The final publication is available at Springer via http://dx.doi.org/10.1007/s11146-015-9531-2