Speculative Bubble Spillovers Across Regional Housing Markets

Abstract

In this paper we determine whether speculative bubbles in one region in the US can lead bubbles to form in others. We first apply a regime-switching model to determine whether speculative bubbles existed in the US regional residential real estate markets. Our findings suggest that the housing markets in five of the nine census divisions investigated were characterized by speculative bubbles. We then examine the extent to which bubbles spill over between neighbouring and more distant regions, finding that the transmission of speculative bubbles and non-fundamentals between regions is multi-directional and does not depend on contiguity or distance.

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

JEL Classification: G12, R21, R23