Intrinsic and Rational Speculative Bubbles in the U.S. Housing Market: 1960-2011
32 Pages Posted: 18 Jun 2013
Date Written: June 17, 2013
This paper examines the dynamics of the residential property market in the United States 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: bubble, property market, residential
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