Irish House Prices - Will the Roof Cave In?
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.
References listed on IDEAS
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.:
- 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.
- Muellbauer, John & Murphy, Anthony, 1997.
"Booms and Busts in the UK Housing Market,"
Royal Economic Society, vol. 107(445), pages 1701-27, November.
- Huntley Schaller & Simon van Norden, 1997.
"Fads or Bubbles?,"
97-2, Bank of Canada.
- Karl E. Case & Robert J. Shiller, 1988.
"The Efficiency of the Market for Single-Family Homes,"
NBER Working Papers
2506, National Bureau of Economic Research, Inc.
- Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March.
- 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.
- Hort, Katinka, 1997. "The Determinants of Urban House Price Fluctuations in Sweden 1967-94," Working Paper Series 1997:4, Uppsala University, Department of Economics.
- Richard Meese & Nancy Wallace, 1990. "Determinants of residential housing prices in the Bay Area 1970-1988: effects of fundamental economic factors or speculative bubbles?," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
- Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, vol. 81(4), pages 922-30, September.
- 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.
- Kenny, Geoff, 1998. "The Housing Market and the Macroeconomy: Evidence From Ireland," Research Technical Papers 1/RT/98, Central Bank of Ireland.
- Van Norden, S. & Vigfusson, R., 1996.
"Regime-Switching Models, A guide to the Bank of Canada Gauss Procedures,"
96-3, Bank of Canada.
- Simon van Norden & Robert Vigfusson, 1996. "Regime-Switching Models: A Guide to the Bank of Canada Gauss Procedures," Econometrics 9603004, EconWPA.
- 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.
- Culter, D.M. & Poterba, J.M. & Summers, L.H., 1990.
544, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hamilton, James D. & Whiteman, Charles H., 1985. "The observable implications of self-fulfilling expectations," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 353-373, November.
- Dougherty, Ann & Van Order, Robert, 1982. "Inflation, Housing Costs, and the Consumer Price Index," American Economic Review, American Economic Association, vol. 72(1), pages 154-64, March.
- Vigfusson, R. & Van Norden, S., 1996.
"Avoiding the Pitfalls: Can Regime-Switching Tests Detect Bubbles?,"
96-11, Bank of Canada.
- Simon van Norden & Robert Vigfusson, 1996. "Avoiding the Pitfalls: Can Regime-Switching Tests Detect Bubbles?," Meeting papers 9603001, EconWPA.
- 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.
- Flood, Robert P & Hodrick, Robert J, 1990. "On Testing for Speculative Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 85-101, Spring.
- Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-30, June.
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: (Frank Walsh)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.