Irish house prices: will the roof fall in?
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.
|Date of creation:||Jun 1999|
|Date of revision:|
|Contact details of provider:|| Postal: Maynooth, Co. Kildare|
Web page: http://www.maynoothuniversity.ie/economics-finance-and-accounting
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
- Simon van Norden & Robert Vigfusson, 1996.
"Regime-Switching Models: A Guide to the Bank of Canada Gauss Procedures,"
- Van Norden, S. & Vigfusson, R., 1996. "Regime-Switching Models, A guide to the Bank of Canada Gauss Procedures," Staff Working Papers 96-3, Bank of Canada.
- Kenny, Geoff, 1998. "The Housing Market and the Macroeconomy: Evidence From Ireland," Research Technical Papers 1/RT/98, Central Bank of Ireland.
- Simon van Norden & Huntley Schaller, 2002.
"Fads or bubbles?,"
Springer, vol. 27(2), pages 335-362.
- David M. Cutler & James M. Poterba & Lawrence H. Summers, 1990.
NBER Working Papers
3242, National Bureau of Economic Research, Inc.
- Irvine, Ian J., 1984. "A Study of New House Prices in Ireland in the Seventies," Research Series, Economic and Social Research Institute (ESRI), number GRS118.
- Takatoshi Ito & Keiko Nosse Hirono, 1993.
"Efficiency of the Tokyo Housing Market,"
Monetary and Economic Studies,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 11(1), pages 1-32, July.
- van Norden, Simon, 1996.
"Regime Switching as a Test for Exchange Rate Bubbles,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 11(3), pages 219-51, May-June.
- Simon van Norden, 1995. "Regime Switching as a Test for Exchange Rate Bubbles," Econometrics 9502001, EconWPA, revised 09 Aug 1995.
- Olivier J. Blanchard & Mark W. Watson, 1982. "Bubbles, Rational Expectations and Financial Markets," NBER Working Papers 0945, National Bureau of Economic Research, Inc.
- Takatoshi Ito & Tokuo Iwaisako, 1996.
"Explaining Asset Bubbles in Japan,"
Monetary and Economic Studies,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 143-193, July.
- Dougherty, Ann & Van Order, Robert, 1982. "Inflation, Housing Costs, and the Consumer Price Index," American Economic Review, American Economic Association, vol. 72(1), pages 154-64, March.
- Muellbauer, J & Murphy, A, 1996.
"Booms and Busts in the UK Housing Market,"
125, Economics Group, Nuffield College, University of Oxford.
- Hall, Stephen & Psaradakis, Zacharias & Sola, Martin, 1997. "Switching error-correction models of house prices in the United Kingdom," Economic Modelling, Elsevier, vol. 14(4), pages 517-527, October.
- Flood, Robert P & Hodrick, Robert J, 1990. "On Testing for Speculative Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 85-101, Spring.
- Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-30, June.
- Levin, Eric J. & Wright, Robert E., 1997. "The impact of speculation on house prices in the United Kingdom," Economic Modelling, Elsevier, vol. 14(4), pages 567-585, October.
- Case, Karl E & Shiller, Robert J, 1989.
"The Efficiency of the Market for Single-Family Homes,"
American Economic Review,
American Economic Association, vol. 79(1), pages 125-37, March.
- Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
- Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, vol. 81(4), pages 922-30, September.
- Hamilton, James D. & Whiteman, Charles H., 1985. "The observable implications of self-fulfilling expectations," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 353-373, November.
When requesting a correction, please mention this item's handle: RePEc:may:mayecw:n890699. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.