Episodes of Exuberance in Housing Markets: In Search of the Smoking Gun

Efthymios Pavlidis, Alisa Yusupova (), Ivan Paya (), David Peel, Enrique Martínez-García (), Adrienne Mack () and Valerie Grossman ()
Additional contact information
Alisa Yusupova: Lancaster University Management School
Enrique Martínez-García: Federal Reserve Bank of Dallas
Adrienne Mack: Mutual of Omaha
Valerie Grossman: Federal Reserve Bank of Dallas
Authors registered in the RePEc Author Service: Enrique Martínez García ()

The Journal of Real Estate Finance and Economics, 2016, vol. 53, issue 4, No 1, 419-449

Abstract: 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 and Yu (International Economic Review 52(1):201–226, 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 (partly) explain the synchronization of exuberance episodes that we detect in the data in the 2000s.

Keywords: House prices; Mildly explosive time series; Sup ADF test; Generalized sup ADF test; Panel GSADF; Probit model; C22; G12; R30; R31 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (62)

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Working Paper: Episodes of Exuberance in Housing Markets: In Search of the Smoking Gun (2013)
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DOI: 10.1007/s11146-015-9531-2

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