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Speculative bubbles or market fundamentals? An investigation of US regional housing markets

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  • Shuping Shi

Abstract

This paper investigates the existence of speculative bubbles in the US national and in 23 regional housing markets over three decades (1978-2012). A new method for detecting exuberance in housing markets is proposed. By taking changes in the macroeconomic conditions (such as interest rate, per-capita income, employment, and population growth) into consideration, the new method provides a better control for housing market fundamentals and thereby it is expected to significantly reduce the chance of false positive identification. Compared with the method of Phillips, Shi and Yu (2015a,b), the new approach finds a dramatic reduction in the number of speculative housing markets and shorter bubble episodes in the US. It locates only one bubble episode in the early-to-mid 2000s over the whole sample period in the national housing market. At the regional level, it identifies three periods of speculation: late 1980s, early-to-mid 2000s, and the post-crisis period in 2011-2012. The early-to-mid 2000s bubble episode is the most severe one involving nine major metropolitan statistical areas.

Suggested Citation

  • Shuping Shi, 2016. "Speculative bubbles or market fundamentals? An investigation of US regional housing markets," CAMA Working Papers 2016-46, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2016-46
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    More about this item

    Keywords

    Speculative bubbles; Housing market; Fundamentals; Macroeconomic conditions; Regional; Explosive;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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