Detecting Real Estate Bubbles: A New Approach Based on the Cross-Sectional Dispersion of Property Prices
AbstractWe 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 InfoPaper provided by University of Tokyo, Graduate School of Economics in its series UTokyo Price Project Working Paper Series with number 006.
Length: 27 pages
Date of creation: Dec 2012
Date of revision: Apr 2013
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
Web page: http://www.e.u-tokyo.ac.jp/
More information through EDIRC
house price indexes; lognormal distributions; power-law distributions; fat tails; hedonic regression; housing bubbles; market segmentation;
Find related papers by JEL classification:
- R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
- C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
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