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Intrinsic and Rational Speculative Bubbles in the US Housing Market: 1960-2011

Author

Listed:
  • Ogonna Nneji

    () (University of Reading)

  • Chris Brooks

    () (University of Reading)

  • Charles Ward

    () (University of Reading)

Abstract

This paper examines the dynamics of the residential property market in the United States between 1960 and 2011. Given the cyclicality and apparent overvaluation of the market over this period, we determine whether deviations of real estate prices from their fundamentals were caused by the existence of two genres of bubbles: intrinsic bubbles and rational speculative bubbles. We find evidence of an intrinsic bubble in the market pre-2000, implying that overreaction to changes in rents contributed to the overvaluation of real estate prices. However, using a regime-switching model, we find evidence of periodically collapsing rational bubbles in the post-2000 market.

Suggested Citation

  • Ogonna Nneji & Chris Brooks & Charles Ward, 2013. "Intrinsic and Rational Speculative Bubbles in the US Housing Market: 1960-2011," Journal of Real Estate Research, American Real Estate Society, vol. 35(2), pages 121-152.
  • Handle: RePEc:jre:issued:v:35:n:2:2013:p:121-152
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    Cited by:

    1. Granziera, Eleonora & Kozicki, Sharon, 2015. "House price dynamics: Fundamentals and expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 60(C), pages 152-165.
    2. Balcilar, Mehmet & Gupta, Rangan & Jooste, Charl & Wohar, Mark E., 2016. "Periodically collapsing bubbles in the South African stock market," Research in International Business and Finance, Elsevier, vol. 38(C), pages 191-201.
    3. Kouwenberg, Roy & Zwinkels, Remco, 2014. "Forecasting the US housing market," International Journal of Forecasting, Elsevier, vol. 30(3), pages 415-425.
    4. Wichita State University, 2016. "Contagion, Interdependence and Diversification across Regional UK Housing Markets," International Real Estate Review, Asian Real Estate Society, vol. 19(3), pages 327-351.
    5. Yang Hu & Les Oxley, 2016. "Bubbles in US Regional House Prices: Evidence from House Price/Income Ratios at the State Level," Working Papers in Economics 16/06, University of Waikato.
    6. Sheridan Titman & Ko Wang & Jing Yang, 2014. "The Dynamics of Housing Prices," NBER Working Papers 20418, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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