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House price cycles in emerging economies

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  • Alessio Ciarlone

    ()
    (Bank of Italy)

Abstract

In this paper, I investigate the characteristics of house price dynamics for a sample of 16 emerging economies from Asia and Central and Eastern Europe, over the period 1995-2011. Linking housing valuations to a set of conventional fundamental determinants – relative to both the supply and the demand side of the market, institutional factors and other asset prices – and modeling short-term price dynamics – which reflect gradual adjustment to underlying fundamentals – I draw conclusions about the existence, and the basic nature, of house price overvaluation (undervaluation). Overall, I find that actual house prices in the sample of emerging economies are not overly disconnected from fundamentals. Rather, they tend to reflect a somewhat slow adjustment to shocks to the latter. Moreover, the evidence that housing valuations may be driven by overly optimistic (or pessimistic) expectations is in general weak, even if this feature may have played a more prominent role up to the end of 2007, before the onset of the recent global real and financial crisis.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 863.

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Date of creation: Apr 2012
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Handle: RePEc:bdi:wptemi:td_863_12

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Keywords: house prices; housing market; emerging markets; panel co-integration; asset prices;

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References

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  1. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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  4. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  5. Veronica Cacdac Warnock & Francis E. Warnock, 2008. "Markets and Housing Finance," Working Papers 032008, Hong Kong Institute for Monetary Research.
  6. repec:ebl:ecbull:v:3:y:2006:i:7:p:1-8 is not listed on IDEAS
  7. Balázs Egert & Dubravko Mihaljek, 2007. "Determinants of House Prices in Central and Eastern Europe," CESifo Working Paper Series 2152, CESifo Group Munich.
  8. Capozza, Dennis R. & Mack, Charlotte & Hendershott, Patric H. & Mayer, Christopher J., 2002. "The Determinants of House Price Dynamics," ERES eres2002_106, European Real Estate Society (ERES).
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  11. Dennis R. Capozza & Patric H. Hendershott & Charlotte Mack & Christopher J. Mayer, 2002. "Determinants of Real House Price Dynamics," NBER Working Papers 9262, National Bureau of Economic Research, Inc.
  12. Chen, Nan-Kuang, 2001. "Bank net worth, asset prices and economic activity," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 415-436, October.
  13. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 99-125, January.
  14. Ciarlone, Alessio, 2011. "Housing wealth effect in emerging economies," Emerging Markets Review, Elsevier, vol. 12(4), pages 399-417.
  15. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 729-52, November.
  16. Alessio Ciarlone, 2012. "Wealth effects in emerging economies," Temi di discussione (Economic working papers) 843, Bank of Italy, Economic Research and International Relations Area.
  17. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
  18. Christoph Duenwald, 2000. "Property Prices and Speculative Bubbles," IMF Working Papers 00/2, International Monetary Fund.
  19. Vladimir Klyuev, 2008. "What Goes Up Must Come Down? House Price Dynamics in the United States," IMF Working Papers 08/187, International Monetary Fund.
  20. Eloisa T. Glindro & Tientip Subhanij & Jessica Szeto & Haibin Zhu, 2011. "Determinants of House Prices in Nine Asia-Pacific Economies," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 163-204, September.
  21. Andrea Finicelli, 2007. "House price developments and fundamentals in the United States," Questioni di Economia e Finanza (Occasional Papers) 7, Bank of Italy, Economic Research and International Relations Area.
  22. Paul Louis Ceriel Hilbers & Angana Banerji & Haiyan Shi & Alexander W. Hoffmaister, 2008. "House Price Developments in Europe," IMF Working Papers 08/211, International Monetary Fund.
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Cited by:
  1. Ponomarenko, Alexey, 2013. "Early warning indicators of asset price boom/bust cycles in emerging markets," Emerging Markets Review, Elsevier, vol. 15(C), pages 92-106.
  2. Alessio Ciarlone, 2012. "Wealth effects in emerging economies," Temi di discussione (Economic working papers) 843, Bank of Italy, Economic Research and International Relations Area.
  3. Ambrogio Cesa-Bianchi, 2012. "Housing Cycles and Macroeconomic Fluctuations: A Global Perspective," IDB Publications 77379, Inter-American Development Bank.
  4. Antje Hildebrandt & Duy T. Huynh-Olesen & Katharina Steiner & Karin Wagner, 2013. "Residential Property Prices in Central, Eastern and Southeastern European Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 52-76.

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