Testing for Bubbles in Housing Markets: A Panel Data Approach

Vyacheslav Mikhed and Petr Zemcik ()

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

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 either by market tenant rents or estimates of a fair market rent. In our full sample periods, an error-correction model is not appropriate, i.e. there is a bubble. We then combine overlapping ten-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 for both panels. Finally, evidence based on panel data Granger causality tests suggests that house price changes are helpful in predicting changes in rents and vice versa.

Keywords: Cointegration; panel data; unit root; bubble; house prices; rents. (search for similar items in EconPapers)
JEL-codes: C33 G12 R21 R31 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-cfn, nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp338

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