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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Episodes of exuberance in housing markets
T2 - in search of the smoking gun
AU - Pavlidis, Efthymios
AU - Yusupova, Alisa
AU - Paya, Ivan
AU - Peel, David
AU - Martínez-García, Enrique
AU - Mack, Adrienne
AU - Grossman, Valerie
N1 - The final publication is available at Springer via http://dx.doi.org/10.1007/s11146-015-9531-2
PY - 2016/11
Y1 - 2016/11
N2 - 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 providesa 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 exuberancein 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.
AB - 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 providesa 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 exuberancein 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.
KW - House prices
KW - Mildly explosive time series
KW - Sup ADF test
KW - Generalized sup ADF test
KW - Panel GSADF
KW - Probit model
U2 - 10.1007/s11146-015-9531-2
DO - 10.1007/s11146-015-9531-2
M3 - Journal article
VL - 53
SP - 419
EP - 449
JO - Journal of Real Estate Finance and Economics
JF - Journal of Real Estate Finance and Economics
SN - 0895-5638
IS - 4
ER -