Intrinsic and Rational Speculative Bubbles in the U.S. Housing Market: 1960-2011

32 Pages Posted: 18 Jun 2013

See all articles by Ogonna Nneji

Ogonna Nneji

University of Reading - ICMA Centre

Chris Brooks

University of Reading - ICMA Centre

Charles W.R. Ward

University of Reading

Date Written: June 17, 2013

Abstract

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

Suggested Citation

Nneji, Ogonna and Brooks, Chris and Ward, Charles W.R., Intrinsic and Rational Speculative Bubbles in the U.S. Housing Market: 1960-2011 (June 17, 2013). Journal of Real Estate Research, Vol. 35, No. 2, 2013, Available at SSRN: https://ssrn.com/abstract=2280677

Ogonna Nneji (Contact Author)

University of Reading - ICMA Centre ( email )

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

Chris Brooks

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)

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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