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House Prices, Fundamentals and Bubbles

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Author Info

  • Angela Black
  • Patricia Fraser
  • Martin Hoesli

Abstract

This paper studies actual (real) house prices relative to fundamental (real) house values. Such a focus is warranted since housing constitutes a large fraction of most household portfolios, and its characteristics are such that, in contrast to what prevails in financial markets, arbitrage will be limited and hence correction toward 'true' value is likely to be a prolonged process. Using UK data and a time-varying present value approach, our results preclude the existence of an explosive rational bubble due to non-fundamental factors. We further find that intrinsic bubbles have an important role to play in determining actual house prices although price dynamics appear to impact, particularly in periods of strong deviation from fundamental value. Price dynamics are found to be driven by momentum behaviour. Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

Volume (Year): 33 (2006-11)
Issue (Month): 9-10 ()
Pages: 1535-1555

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Handle: RePEc:bla:jbfnac:v:33:y:2006-11:i:9-10:p:1535-1555

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X

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Cited by:
  1. Alberto, Montagnoli & Jun, Nagayasu, 2013. "An Investigation of Housing Affordability in the UK Regions," SIRE Discussion Papers 2013-64, Scottish Institute for Research in Economics (SIRE).
  2. Erdem Basci & Ismail Saglam, 2008. "On Roots of Housing Bubbles," Working Papers 0801, TOBB University of Economics and Technology, Department of Economics.
  3. Bourassa, Steven & Hoesli, Martin & Scognamiglio, Donato, 2010. "Housing finance, prices, and tenure in Switzerland," MPRA Paper 45990, University Library of Munich, Germany.
  4. John FRY, 2010. "Bubbles And Crashes In Finance: A Phase Transition From Random To Deterministic Behaviour In Prices," Journal of Applied Research in Finance Bi-Annually, ASERS Publishing, vol. 0(2), pages 131-137, December.
  5. repec:asi:ajoerj:2013:p:785-807 is not listed on IDEAS
  6. Nils Holinski & Robert Vermeulen, 2012. "The international wealth channel: a global error-correcting analysis," Empirical Economics, Springer, vol. 43(3), pages 985-1010, December.
  7. Patricia Fraser & Martin Hoesli & Lynn McAlevey, 2008. "House Prices and Bubbles in New Zealand," The Journal of Real Estate Finance and Economics, Springer, vol. 37(1), pages 71-91, July.

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