Intrinsic and Rational Speculative Bubbles in the US Housing Market: 1960–2011

48 Pages Posted: 10 Jan 2011 Last revised: 13 Mar 2013

See all articles by Ogonna Nneji

Ogonna Nneji

University of Reading - ICMA Centre

Chris Brooks

University of Bristol - School of Economics, Finance and Management

Charles W.R. Ward

University of Reading

Date Written: January 7, 2011

Abstract

This paper examines the dynamics of the residential property market in the US between 1960 and 2011. Given the cyclicality and apparent overvaluation of the market over this period, we determine whether deviations of real estate prices from their fundamentals were caused by the existence of two genres of bubbles: intrinsic bubbles and rational speculative bubbles. We find evidence of an intrinsic bubble in the market pre-2000, implying that overreaction to changes in rents contributed to the overvaluation of real estate prices. However, using a regime switching model, we find evidence of periodically collapsing rational bubbles in the post-2000 market.

Keywords: intrinsic bubbles, rational bubbles, rents, US residential real estate market

JEL Classification: G12, R21

Suggested Citation

Nneji, Ogonna and Brooks, Chris and Ward, Charles W.R., Intrinsic and Rational Speculative Bubbles in the US Housing Market: 1960–2011 (January 7, 2011). Journal of Real Estate Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1736632 or http://dx.doi.org/10.2139/ssrn.1736632

Ogonna Nneji

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Chris Brooks (Contact Author)

University of Bristol - School of Economics, Finance and Management ( email )

School of Accounting and Finance
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

Charles W.R. Ward

University of Reading ( email )

ICMA Centre,
Henley Business School
Reading, RG6 6AB
United Kingdom
T: +44 (0)118 378 8239 (Phone)

HOME PAGE: http://www.icmacentre.ac.uk/about_us/academic_staff/professor_charles_ward,

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