Seemingly Irrational but Predictable Price Formation in Seoul's Housing Market

Posted: 24 Mar 2012

See all articles by Hoon Cho

Hoon Cho

Korea Advanced Institute of Science and Technology (KAIST)

Kyung-Hwan Kim

Sogang University

James D. Shilling

DePaul University; National Bureau of Economic Research (NBER)

Date Written: March 22, 2012

Abstract

This paper tests the dynamics implied by a supplied-constrained view of the relationship between market fundamentals and house prices in the case of Seoul's housing market. The view is that supply constraints have led to serious shortages in certain submarkets, and that these shortages have led to a rapid rise in house prices and to panic buying or inflation-induced investing and to further price increases. The estimation period of the test is November 1988-February 2007. The results suggest that house prices in Seoul are highly persistent because of these supply constraints. Additionally, we do what we can with the available data to determine if house price increases serve to increase demand further, and if rent-price ratios and nominal interest rates are a good predictor of how housing prices in Seoul will evolve over time.

Keywords: housing demand, business fluctuations, asset pricing

JEL Classification: R21, E32, G12

Suggested Citation

Cho, Hoon and Kim, Kyung-Hwan and Shilling, James D., Seemingly Irrational but Predictable Price Formation in Seoul's Housing Market (March 22, 2012). Journal of Real Estate Finance and Economics, Vol. 44, No. 4, 2012, Available at SSRN: https://ssrn.com/abstract=2027610

Hoon Cho

Korea Advanced Institute of Science and Technology (KAIST) ( email )

373-1 Kusong-dong
Yuson-gu
Taejon 305-701, 130-722
Korea, Republic of (South Korea)

Kyung-Hwan Kim

Sogang University ( email )

Seoul 121-742
Korea

James D. Shilling (Contact Author)

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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