Testing for Bubbles in Housing Markets: A Panel Data Approach

Vyacheslav Mikhed and Petr Zemčík ()

The Journal of Real Estate Finance and Economics, 2009, vol. 38, issue 4, 366-386

Abstract: We employ recently developed cross-sectionally robust panel data tests for unit roots and cointegration to find whether house prices reflect house related earnings. We use U.S. data for Metropolitan Statistical Areas, with house price measured by the weighted-repeated-sales index and cash-flows by market tenants’ rents. In our full sample period, an error-correction model is not appropriate, i.e. there is a bubble. We then combine overlapping 10-year periods, price–rent ratios, and the panel data tests to construct a bubble indicator. The indicator is high for the late 1980s, early 1990s and since the late 1990s. Finally, evidence based on panel data Granger causality tests suggests that house price changes are helpful in predicting changes in rents and vice versa. Copyright Springer Science+Business Media, LLC 2009

Keywords: Cointegration; Panel data; Unit root; Bubble; House prices; Rents (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (43)

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DOI: 10.1007/s11146-007-9090-2

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