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Measuring House Price Bubbles

Steven Bourassa (), Martin Hoesli and Elias Oikarinen

No 16-01, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Using data for six metropolitan housing markets in three countries, this paper provides a comparison of methods used to measure house price bubbles. We use an asset pricing approach to identify bubble periods retrospectively and then compare those results with results produced by six other methods. We also apply the various methods recursively to assess their ability to identify bubbles as they form. In view of the complexity of the asset pricing approach, we conclude that a simple price-rent ratio measure is a reliable method both ex post and in real time. Our results have important policy implications because a reliable signal that a bubble is forming could be used to avoid further house price increases.

Keywords: Housing; Bubble; Overvaluation; Asset Pricing; Price-Rent Ratio; Policy Measures (search for similar items in EconPapers)
JEL-codes: R31 G12 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-ure
Date: 2016-01
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