Speculative Bubble Spillovers Across Regional Housing Markets

Abstract:     
With numerous studies showing the interconnectedness of regional housing markets, in this paper the authors determine whether speculative bubbles in one region in the US can lead bubbles to form in others. Focusing on the period 1991 to 2010, they first apply a regime-switching model to determine whether speculative bubbles existed in the US regional residential real estate markets. Their findings suggest that the housing markets in six of the nine census divisions investigated were characterized by speculative bubbles. The authors then examine the extent to which bubbles spill over between neighbouring and more distant regions. Using a multivariate bubble spillover model, they find that the transmission of speculative bubbles and non-fundamentals between regions is multi-directional and does not depend on contiguity or distance. Their results also suggest that speculative activities in the coastal regions of the Middle Atlantic and Pacific are the most contagious.

Number of Pages in PDF File: 30

Keywords: speculative bubbles, real estate, regime-switching, regional spillovers

JEL Classification: G12, R21, R23

working papers series