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Intrinsic and Rational Speculative Bubbles in the US Housing Market: 1960-2011

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  • Ogonna Nneji

    ()
    (University of Reading)

  • Chris Brooks

    ()
    (University of Reading)

  • Charles Ward

    ()
    (University of Reading)

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.

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File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/new_current/vol35n02/01.121_152.pdf
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Bibliographic Info

Article provided by American Real Estate Society in its journal journal of Real Estate Research.

Volume (Year): 35 (2013)
Issue (Month): 2 ()
Pages: 121-152

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Handle: RePEc:jre:issued:v:35:n:2:2013:p:121-152

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Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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