IDEAS home Printed from https://ideas.repec.org/a/eso/journl/v30y1999i4p343-362.html
   My bibliography  Save this article

Irish House Prices - Will the Roof Cave In?

Author

Listed:
  • Maurice J. Roche

    (National University of Ireland, Maynooth)

Abstract

In the last few years there have been many comments made in the media about the Irish housing market boom. This paper focuses on two of these comments. The first comment is that some economists have suggested that a speculative bubble might be present in Irish house prices. The second comment is that some housing market analysts have asked whether a crash similar to what happened in the British housing market in the late 1980s would occur in Ireland. Many of these analysts suggest that it is highly unlikely that a similar slump would occur in the Irish housing market. Given that bubbles have a habit of bursting one might think that these remarks are contradictory. We reconcile these two comments using regime-switching models of real secondhand house prices in Britain and Ireland. The models are estimated and tested to explore whether speculative bubbles, fads or just fundamentals drive house prices. Our main findings suggest that there was a speculative bubble in Britain in the late 1980s and in Ireland in the late 1990s. We estimate that the probability of a crash in Britain reached its highest value of about 5 per cent in the last few quarters of 1989. We also estimate the probability of a crash in the Irish housing market to have increased to around 2 per cent by the end of 1998.

Suggested Citation

  • Maurice J. Roche, 1999. "Irish House Prices - Will the Roof Cave In?," The Economic and Social Review, Economic and Social Studies, vol. 30(4), pages 343-362.
  • Handle: RePEc:eso:journl:v:30:y:1999:i:4:p:343-362
    as

    Download full text from publisher

    File URL: http://www.esr.ie/vol30_4/1_Roche.pdf
    File Function: First version, 1999
    Download Restriction: no

    References listed on IDEAS

    as
    1. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
    2. Levin, Eric J. & Wright, Robert E., 1997. "The impact of speculation on house prices in the United Kingdom," Economic Modelling, Elsevier, vol. 14(4), pages 567-585, October.
    3. Vigfusson, R. & Van Norden, S., 1996. "Avoiding the Pitfalls: Can Regime-Switching Tests Detect Bubbles?," Staff Working Papers 96-11, Bank of Canada.
    4. Simon van Norden & Huntley Schaller, 2002. "Fads or bubbles?," Empirical Economics, Springer, pages 335-362.
    5. Dougherty, Ann & Van Order, Robert, 1982. "Inflation, Housing Costs, and the Consumer Price Index," American Economic Review, American Economic Association, pages 154-164.
    6. Hall, Stephen & Psaradakis, Zacharias & Sola, Martin, 1997. "Switching error-correction models of house prices in the United Kingdom," Economic Modelling, Elsevier, vol. 14(4), pages 517-527, October.
    7. Van Norden, S. & Vigfusson, R., 1996. "Regime-Switching Models, A guide to the Bank of Canada Gauss Procedures," Staff Working Papers 96-3, Bank of Canada.
    8. Titman, Sheridan, 1992. " Interest Rate Swaps and Corporate Financing Choices," Journal of Finance, American Finance Association, vol. 47(4), pages 1503-1516, September.
    9. Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," Economic Journal, Royal Economic Society, vol. 107(445), pages 1701-1727, November.
    10. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, pages 125-137.
    11. Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, pages 520-530.
    12. Flood, Robert P & Hodrick, Robert J, 1990. "On Testing for Speculative Bubbles," Journal of Economic Perspectives, American Economic Association, pages 85-101.
    13. Irvine, Ian J., 1984. "A Study of New House Prices in Ireland in the Seventies," Research Series, Economic and Social Research Institute (ESRI), number GRS118.
    14. Kenny, Geoff, 1998. "The Housing Market and the Macroeconomy: Evidence From Ireland," Research Technical Papers 1/RT/98, Central Bank of Ireland.
    15. Culter, D.M. & Poterba, J.M. & Summers, L.H., 1990. "Speculative Dynamics," Working papers 544, Massachusetts Institute of Technology (MIT), Department of Economics.
    16. Hort, Katinka, 1997. "The Determinants of Urban House Price Fluctuations in Sweden 1967-94," Working Paper Series 1997:4, Uppsala University, Department of Economics.
    17. Takatoshi Ito & Tokuo Iwaisako, 1996. "Explaining Asset Bubbles in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 143-193, July.
    18. Hamilton, James D. & Whiteman, Charles H., 1985. "The observable implications of self-fulfilling expectations," Journal of Monetary Economics, Elsevier, pages 353-373.
    19. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, pages 125-137.
    20. Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, pages 922-930.
    21. David M. Cutler & James M. Poterba & Lawrence H. Summers, 1991. "Speculative Dynamics," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 529-546.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Morgenroth, Edgar, 2014. "Modelling the Impact of Fundamentals on County Housing Markets in Ireland," MPRA Paper 57665, University Library of Munich, Germany.
    2. Andersson, Magnus & D'Agostino, Antonello, 2008. "Are sectoral stock prices useful for predicting euro area GDP?," Working Paper Series 876, European Central Bank.
    3. Roche, Maurice, 2003. "Will there be a Crash in Irish House Prices?," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), pages 1-16.
    4. Kennedy, Gerard & McQuinn, Kieran, 2011. "Scenarios for Irish House Prices," Economic Letters 02/EL/11, Central Bank of Ireland.
    5. Dascher, K., 2000. "Trade, FDI and Congestion: the Small and Very Open Economy," Papers 00/09, College Dublin, Department of Political Economy-.
    6. Diarmaid Addison-Smyth & Kieran McQuinn, 2010. "Quantifying Revenue Windfalls from the Irish Housing Market," The Economic and Social Review, Economic and Social Studies, pages 201-233.
    7. Honohan, Patrick, 2009. "Resolving Ireland’s Banking Crisis," The Economic and Social Review, Economic and Social Studies, pages 207-231.
    8. Mc Quinn, Kieran, 2004. "A Model of the Irish Housing Sector," Research Technical Papers 1/RT/04, Central Bank of Ireland.
    9. Keane, Claire & Walsh, John R. & Callan, Tim & Savage, Michael, 2012. "Property Tax in Ireland: Key Choices," Papers EC11, Economic and Social Research Institute (ESRI).
    10. D'Agostino, Antonello & McQuinn, Kieran & O' Reilly, Gerard, 2008. "Identifying and Forecasting House Price Dynamics in Ireland," Research Technical Papers 3/RT/08, Central Bank of Ireland.
    11. David Duffy & John Fitz Gerald & Ide Kearney, 2005. "Rising House Prices in an Open Labour Market," The Economic and Social Review, Economic and Social Studies, pages 251-272.
    12. Duffy, David, 2002. "A Descriptive Analysis of the Irish Housing Market," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), pages 1-16.
    13. Morgenroth, Edgar, 2014. "Projected Population Change and Housing Demand: A County Level Analysis," Research Notes RN2014/2/3, Economic and Social Research Institute (ESRI).
    14. Duffy, David, 2011. "User Cost and Irish House Prices," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    15. Addison-Smyth, Diarmaid & McQuinn, Kieran & O'Reilly, Gerard, 2009. "Modelling Credit in the Irish Mortgage Market," The Economic and Social Review, Economic and Social Studies, pages 371-392.
    16. Browne, Frank & Cronin, David, 2010. "Commodity prices, money and inflation," Journal of Economics and Business, Elsevier, vol. 62(4), pages 331-345, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eso:journl:v:30:y:1999:i:4:p:343-362. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martina Lawless). General contact details of provider: http://www.esr.ie .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.