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Detecting Real Estate Bubbles: A New Approach Based on the Cross-Sectional Dispersion of Property Prices

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Author Info

  • Takaaki Ohnishi

    (Canon Institute for Global Studies and University of Tokyo)

  • Takayuki Mizuno

    (National Institute of Informatics.)

  • Chihiro Shimizu

    (Reitaku University)

  • Tsutomu Watanabe

    (Graduate School of Economics, University of Tokyo)

Registered author(s):

    Abstract

    We investigate the cross-sectional distribution of house prices in the Greater Tokyo Area for the period 1986 to 2009. We find that size-adjusted house prices follow a lognor- mal distribution except for the period of the housing bubble and its collapse in Tokyo, for which the price distribution has a substantially heavier right tail than that of a lognormal distribution. We also find that, during the bubble era, sharp price movements were con- centrated in particular areas, and this spatial heterogeneity is the source of the fat upper tail. These findings suggest that, during a bubble period, prices go up prominently for particular properties, but not so much for other properties, and as a result, price inequality across properties increases. In other words, the defining property of real estate bubbles is not the rapid price hike itself but an increase in price dispersion. We argue that the shape of cross sectional house price distributions may contain information useful for the detection of housing bubbles.

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    Bibliographic Info

    Paper provided by University of Tokyo, Graduate School of Economics in its series UTokyo Price Project Working Paper Series with number 006.

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    Length: 27 pages
    Date of creation: Dec 2012
    Date of revision: Apr 2013
    Handle: RePEc:upd:utppwp:006

    Contact details of provider:
    Postal: University of Tokyo 702 Faculty of Economics, The University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan
    Phone: +81-3-3812-2111
    Email:
    Web page: http://www.e.u-tokyo.ac.jp/
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    Related research

    Keywords: house price indexes; lognormal distributions; power-law distributions; fat tails; hedonic regression; housing bubbles; market segmentation;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212 National Bureau of Economic Research, Inc.
    2. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions," NBER Working Papers 11643, National Bureau of Economic Research, Inc.
    3. John H. Cochrane, 2002. "Stocks as Money: Convenience Yield and the Tech-Stock Bubble," NBER Working Papers 8987, National Bureau of Economic Research, Inc.
    4. Xavier Gabaix, 2008. "Power Laws in Economics and Finance," NBER Working Papers 14299, National Bureau of Economic Research, Inc.
    5. Cropper, Maureen L & Deck, Leland B & McConnell, Kenneth E, 1988. "On the Choice of Functional Form for Hedonic Price Functions," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 668-75, November.
    6. Chihiron Shimizu & Kiyohiko G. Nishimura & Tsutomu Watanabe, 2010. "Housing Prices in Tokyo: A Comparison of Hedonic and Repeat Sales Measures," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(6), pages 792-813, December.
    7. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2006. "Why Has House Price Dispersion Gone Up?," NBER Working Papers 12538, National Bureau of Economic Research, Inc.
    8. Takáts, Előd, 2012. "Aging and house prices," Journal of Housing Economics, Elsevier, vol. 21(2), pages 131-141.
    9. Okina, Kunio & Shiratsuka, Shigenori, 2002. "Asset Price Bubbles, Price Stability, and Monetary Policy: Japan' s Experience," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(3), pages 35-76, October.
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