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Irish house prices: will the roof fall in?

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  • Maurice J. Roche

    () (Department of Economics, National University of Ireland, Maynooth, Ireland)

Abstract

In the last few years there has 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 second hand 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 five percent 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 two percent by the end of 1998.

Suggested Citation

  • Maurice J. Roche, 1999. "Irish house prices: will the roof fall in?," Economics, Finance and Accounting Department Working Paper Series n890699, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  • Handle: RePEc:may:mayecw:n890699
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dascher, K., 2000. "Trade, FDI and Congestion: the Small and Very Open Economy," Papers 00/09, College Dublin, Department of Political Economy-.
    2. Diarmaid Addison-Smyth & Kieran McQuinn, 2010. "Quantifying Revenue Windfalls from the Irish Housing Market," The Economic and Social Review, Economic and Social Studies, pages 201-233.
    3. Mc Quinn, Kieran, 2004. "A Model of the Irish Housing Sector," Research Technical Papers 1/RT/04, Central Bank of Ireland.
    4. D'Agostino, Antonello & McQuinn, Kieran & O' Reilly, Gerard, 2008. "Identifying and Forecasting House Price Dynamics in Ireland," Research Technical Papers 3/RT/08, Central Bank of Ireland.
    5. Andersson, Magnus & D'Agostino, Antonello, 2008. "Are sectoral stock prices useful for predicting euro area GDP?," Working Paper Series 876, European Central Bank.
    6. Roche, Maurice, 2003. "Will there be a Crash in Irish House Prices?," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), pages 1-16.
    7. Addison-Smyth, Diarmaid & McQuinn, Kieran & O'Reilly, Gerard, 2009. "Modelling Credit in the Irish Mortgage Market," The Economic and Social Review, Economic and Social Studies, vol. 40(4), pages 371-392.
    8. Browne, Frank & Cronin, David, 2010. "Commodity prices, money and inflation," Journal of Economics and Business, Elsevier, vol. 62(4), pages 331-345, July.

    More about this item

    Keywords

    Regime-switching; House prices; Bubbles; Fads;

    JEL classification:

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

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