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Detecting Real Estate Bubbles: A New Approach Based on the Cross-Sectional Dispersion of Property Prices

Author

Listed:
  • Takaaki Ohnishi

    (The Canon Institute of Global Studies and the University of Tokyo)

  • Takayuki Mizuno

    (National Institute for Global Studieso)

  • Chihiro Shimizu

    (Reitaku University)

  • Tsutomu Watanabe

    (The University of Tokyo)

Abstract

We 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 lognormal 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 concentrated 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.

Suggested Citation

  • Takaaki Ohnishi & Takayuki Mizuno & Chihiro Shimizu & Tsutomu Watanabe, 2013. "Detecting Real Estate Bubbles: A New Approach Based on the Cross-Sectional Dispersion of Property Prices," CARF F-Series CARF-F-313, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    • Handle: RePEc:cfi:fseres:cf313
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    References listed on IDEAS

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