Bubble Formation and Networks in Housing Markets

35 Pages Posted: 1 Mar 2018

See all articles by Shuping Shi

Shuping Shi

Department of Economics, Macquarie University

Ben Zhe Wang

Macquarie University, Macquarie Business School

Multiple version iconThere are 2 versions of this paper

Date Written: February 20, 2018

Abstract

This paper proposes a framework for analysing speculative bubbles in housing markets. The formation of bubbles is investigated at the sub-city level, and a bubble index is constructed showing the timeline and the intensity of speculation. The city level bubble network is examined in detail, with the global connectivity index predicting either exacerbating or autonomous bubbles, and the individual connectivity index identifying systematically important sub-markets. We illustrate our approach by using local government area level data of the Sydney and Melbourne housing markets from January 2005 to April 2016. Evidence of high intensity speculation is found in both markets from mid-2013 to the end of the sample period. While the Melbourne bubble network is an autonomous one, speculative bubbles in the Sydney market are highly interconnected, and show a spreading tendency from 2014 to 2015.

Keywords: Bubbles, housing market, real-time, identification, bubble network

JEL Classification: R31, R39, C22

Suggested Citation

Shi, Shuping and Wang, Ben Zhe, Bubble Formation and Networks in Housing Markets (February 20, 2018). Available at SSRN: https://ssrn.com/abstract=3126547 or http://dx.doi.org/10.2139/ssrn.3126547

Shuping Shi (Contact Author)

Department of Economics, Macquarie University ( email )

New South Wales 2109
Australia

Ben Zhe Wang

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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