Episodes of Exuberance in Housing Markets: In Search of the Smoking Gun

Posted: 11 Oct 2021 Last revised: 11 Jan 2022

See all articles by Valerie Grossman

Valerie Grossman

Federal Reserve Banks - Federal Reserve Bank of Dallas

Adrienne Mack

affiliation not provided to SSRN

Enrique Martínez-García

Federal Reserve Bank of Dallas - Research Department

Efthymios Pavlidis

affiliation not provided to SSRN

Ivan Paya

affiliation not provided to SSRN

David Peel

affiliation not provided to SSRN

Alisa Yusupova

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: December, 2013

Abstract

In this paper, we examine changes in the time series properties of standard housing market indicators (real house prices, price-to-income ratios, and price-to-rent ratios) for a large set of countries to detect episodes of explosive dynamics. Dating exuberance in housing markets provides a timeline as well as empirical content to the narrative connecting housing exuberance to the global 2008?09 recession. For our investigation, we employ two recursive univariate unit root tests developed by Phillips et al. (2011) and Phillips et al. (2015). We also propose a novel extension of the Phillips et al. (2015) test to a panel setting in order to exploit the large cross-sectional dimension of our international dataset. Statistically significant periods of exuberance are found in most countries. Moreover, there is also strong evidence of an unprecedented period of exuberance in the early 2000s that eventually collapsed around 2006?07, preceding the 2008?09 global recession. We find that long-term interest rates, credit growth and global economic conditions help to predict (in-sample) episodes of housing exuberance. We conclude that global macro and financial factors explain (partly) the synchronization of exuberance episodes that we detect in the data in the 2000s.

JEL Classification: C22, G12, R31

Suggested Citation

Grossman, Valerie and Mack, Adrienne and Martinez-Garcia, Enrique and Pavlidis, Efthymios and Paya, Ivan and Peel, David and Yusupova, Alisa, Episodes of Exuberance in Housing Markets: In Search of the Smoking Gun (December, 2013). Available at SSRN: https://ssrn.com/abstract=3885380

Valerie Grossman (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Adrienne Mack

affiliation not provided to SSRN

No Address Available

Enrique Martinez-Garcia

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5262 (Phone)

HOME PAGE: http://sites.google.com/view/emgeconomics

Efthymios Pavlidis

affiliation not provided to SSRN

No Address Available

Ivan Paya

affiliation not provided to SSRN

No Address Available

David Peel

affiliation not provided to SSRN

No Address Available

Alisa Yusupova

affiliation not provided to SSRN

No Address Available

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