Measuring House Price Bubbles

37 Pages Posted: 16 Jan 2016  

Steven C. Bourassa

Florida Atlantic University

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); University of Aberdeen - Business School; Swiss Finance Institute; University of Geneva - Geneva Finance Research Institute

Elias Oikarinen

University of Turku, Department of Economics

Date Written: January 6, 2016

Abstract

Using data for six metropolitan housing markets in three countries, this paper provides a comparison of methods used to measure house price bubbles. We use an asset pricing approach to identify bubble periods retrospectively and then compare those results with results produced by six other methods. We also apply the various methods recursively to assess their ability to identify bubbles as they form. In view of the complexity of the asset pricing approach, we conclude that a simple price-rent ratio measure is a reliable method both ex post and in real time. Our results have important policy implications because a reliable signal that a bubble is forming could be used to avoid further house price increases.

Keywords: Housing; Bubble; Overvaluation; Asset Pricing; Price-Rent Ratio; Policy Measures

JEL Classification: R31; G12; E58

Suggested Citation

Bourassa, Steven C. and Hoesli, Martin and Oikarinen, Elias, Measuring House Price Bubbles (January 6, 2016). Swiss Finance Institute Research Paper No. 16-01. Available at SSRN: https://ssrn.com/abstract=2715632 or http://dx.doi.org/10.2139/ssrn.2715632

Steven C. Bourassa

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States
5028077642 (Phone)

Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Swiss Finance Institute ( email )

24 rue du Général-Dufour
Geneva, CH - 1211
Switzerland

University of Geneva - Geneva Finance Research Institute ( email )

Geneva
Switzerland

Elias Oikarinen

University of Turku, Department of Economics ( email )

Turku, FIN-20500
Finland

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