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Bubbles in US regional house prices: evidence from house price–income ratios at the State level

Author

Listed:
  • Yang Hu
  • Les Oxley

Abstract

We investigate the presence of bubbles in the US house price-income ratio at the State level by applying the recent time series-based econometric test to data from January 1975 to December 2014. We find evidence of bubbles in several States in the 1980s (i.e. California, Hawaii, Massachusetts, New York, etc.), which coincides with some existing studies that investigate housing bubbles or booms and busts using a range of alternative approaches. Our results show the existence of a housing bubble that originates in the early 2000s and collapses in the mid-2000s in more than 20 States and the District of Columbia concluding that the bubbles of the 2000s were more widespread than the 1980s, which is of special interest and importance. Our results seem to be in agreement with the talk given by Alan Greenspan in 2005, who suggest no sign of a nationwide housing bubble but a lot of local bubbles. We also study the importance of the regression model specification with/without an intercept and the regression model with an intercept could lead to false-positive identification of bubbles.

Suggested Citation

  • Yang Hu & Les Oxley, 2018. "Bubbles in US regional house prices: evidence from house price–income ratios at the State level," Applied Economics, Taylor & Francis Journals, vol. 50(29), pages 3196-3229, June.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:29:p:3196-3229
    DOI: 10.1080/00036846.2017.1418080
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    Cited by:

    1. Ye ChenCapital & Peter C B Phillips & Shuping Shi, 2023. "Common Bubble Detection in Large Dimensional Financial Systems," Journal of Financial Econometrics, Oxford University Press, vol. 21(4), pages 989-1063.
    2. Yang Hu, 2023. "A review of Phillips‐type right‐tailed unit root bubble detection tests," Journal of Economic Surveys, Wiley Blackwell, vol. 37(1), pages 141-158, February.
    3. Adrian Fernández-Pérez & Marta Gómez-Puig & Simón Sosvilla-Rivero, 2025. "El Clasico of Housing: Bubbles in Madrid and Barcelona’s Real Estate Markets," Documentos de Trabajo del ICAE 2025-03, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    4. Xie, Zixiong & Chen, Shyh-Wei & Wu, An-Chi, 2019. "Asymmetric adjustment, non-linearity and housing price bubbles: New international evidence," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    5. Mumtaz Ahmed & Liviu Marian Matac & Naureen Maqbool & Asma Salman & Muthanna G. Abdul Razzaq & Lara Al-Haddad & Codruta Daniela Pavel, 2024. "Bubbles Identification in an Emerging Economy and Within Stock Markets of its Trading Partners: Evidence from a GSADF Approach," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-27, December.
    6. Wei Hu & Shanggang Yin & Haibo Gong, 2022. "Spatial–Temporal Evolution Patterns and Influencing Factors of China’s Urban Housing Price-to-Income Ratio," Land, MDPI, vol. 11(12), pages 1-15, December.
    7. Wang, Xichen & Liu, Qingya, 2023. "Can the global financial cycle explain the episodes of exuberance in international housing markets?," Finance Research Letters, Elsevier, vol. 52(C).
    8. Fan, John Hua & Fernandez-Perez, Adrian & Indriawan, Ivan & Todorova, Neda, 2024. "When Chinese mania meets global frenzy: Commodity price bubbles," Journal of Commodity Markets, Elsevier, vol. 36(C).
    9. David Gray, 2022. "Do house price-earnings ratios in England and Wales follow a power law? An application of Lavalette’s law to district data," Environment and Planning B, , vol. 49(4), pages 1184-1196, May.
    10. Wang, Shaoping & Yu, Lu & Zhao, Qing, 2021. "Do factor models explain stock returns when prices behave explosively? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    11. Arsova, Antonia & Karaman Örsal, Deniz Dilan, 2021. "A panel cointegrating rank test with structural breaks and cross-sectional dependence," Econometrics and Statistics, Elsevier, vol. 17(C), pages 107-129.
    12. Martínez-García, Enrique & Grossman, Valerie, 2020. "Explosive dynamics in house prices? An exploration of financial market spillovers in housing markets around the world," Journal of International Money and Finance, Elsevier, vol. 101(C).
    13. Yanotti, Maria B. & Kangogo, Moses & Wright, Danika & Sarkar, Somwrita & Lyu, Fei, 2024. "House price dynamics and internal migration across Australia," SocArXiv r5eg2, Center for Open Science.
    14. Shuping Shi & Peter C.B. Phillips, 2023. "Diagnosing housing fever with an econometric thermometer," Journal of Economic Surveys, Wiley Blackwell, vol. 37(1), pages 159-186, February.
    15. Gomis-Porqueras, Pedro & Shi, Shuping & Tan, David, 2022. "Gold as a financial instrument," Journal of Commodity Markets, Elsevier, vol. 27(C).
    16. Aktham Maghyereh & Hussein Abdoh, 2022. "Bubble contagion effect between the main precious metals," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 40(1), pages 43-63, March.
    17. Ting Lan, 2019. "Intrinsic bubbles and Granger causality in the Hong Kong residential property market," Frontiers of Business Research in China, Springer, vol. 13(1), pages 1-15, December.
    18. Caravello, Tomas E. & Psaradakis, Zacharias & Sola, Martin, 2023. "Rational bubbles: Too many to be true?," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    19. Evren Ceritoglu & Seyit Mumin Cilasun & Ufuk Demiroglu & Aytul Ganioglu, 2019. "An analysis to detect exuberance and implosion in regional house prices in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 19(2), pages 67-82.
    20. Wei Fan & Yun He & Liang Hao & Fan Wu, 2024. "Do high house prices promote the development of China’s real economy? Empirical evidence based on the decomposition of real estate price," PLOS ONE, Public Library of Science, vol. 19(1), pages 1-25, January.
    21. Hu, Yang & Oxley, Les, 2018. "Bubble contagion: Evidence from Japan’s asset price bubble of the 1980-90s," Journal of the Japanese and International Economies, Elsevier, vol. 50(C), pages 89-95.
    22. Shanggang Yin & Zhifei Ma & Weixuan Song & Chunhui Liu, 2019. "Spatial Justice of a Chinese Metropolis: A Perspective on Housing Price-to-Income Ratios in Nanjing, China," Sustainability, MDPI, vol. 11(6), pages 1-15, March.

    More about this item

    JEL classification:

    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
    • R19 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Other
    • R39 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other

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