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Testing for a housing bubble at the national and regional level: the case of Israel

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  • Itamar Caspi

Abstract

Between 2008 and 2013, home prices in Israel appreciated by roughly 50 percent in real terms, with increases of nearly 60 percent in some regions. This paper examines whether this phenomenon reflects the presence of a national or regional housing bubble by applying econometric tests for explosive behavior to quality adjusted national and regional level data on the home price to rent ratio, while controlling for various fundamental factors, including interest rates, income and the leverage ratio. Overall, study results indicate that the recent housing price appreciations at the national and regional levels are consistent with the developments of the fundamentals ? supply and demand factors that are represented by rent payments and interest rates ? and not with a housing bubble scenario. Most of the results are robust to a variety of tests and alternate specifications. The framework I provide to study the Israeli case may be applied to study other housing markets facing similar developments.

Suggested Citation

  • Itamar Caspi, 2015. "Testing for a housing bubble at the national and regional level: the case of Israel," Globalization Institute Working Papers 246, Federal Reserve Bank of Dallas, revised 01 Aug 2015.
  • Handle: RePEc:fip:feddgw:246
    DOI: 10.24149/gwp246
    Note: Published as: Caspi, Itamar (2016), "Testing for a Housing Bubble at the National and Regional Level: The Case of Israel," Empirical Economics 51 (2): 483-516.
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:finlet:v:26:y:2018:i:c:p:89-94 is not listed on IDEAS
    2. Peter C.B. Phillips & Shuping Shi, 2018. "Real Time Monitoring of Asset Markets: Bubbles and Crises," Cowles Foundation Discussion Papers 2152, Cowles Foundation for Research in Economics, Yale University.
    3. repec:spr:empeco:v:55:y:2018:i:4:d:10.1007_s00181-017-1347-x is not listed on IDEAS
    4. repec:kap:atlecj:v:45:y:2017:i:1:d:10.1007_s11293-017-9531-0 is not listed on IDEAS
    5. repec:spr:empeco:v:56:y:2019:i:4:d:10.1007_s00181-017-1394-3 is not listed on IDEAS
    6. Caspi, Itamar & Graham, Meital, 2018. "Testing for bubbles in stock markets with irregular dividend distribution," Finance Research Letters, Elsevier, vol. 26(C), pages 89-94.
    7. Dana Orfaig, 2017. "A Structural VAR Model for Estimating the Link between Monetary Policy and Home Prices in Israel," Bank of Israel Working Papers 2017.09, Bank of Israel.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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