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

Author

Listed:
  • Takaaki Ohnishi

    (Canon Institute for Global Studies and University of Tokyo)

  • Takayuki Mizuno

    (National Institute of Informatics.)

  • Chihiro Shimizu

    (Reitaku University)

  • Tsutomu Watanabe

    (Graduate School of Economics, 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 lognor- mal 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 con- centrated 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, 2012. "Detecting Real Estate Bubbles: A New Approach Based on the Cross-Sectional Dispersion of Property Prices," UTokyo Price Project Working Paper Series 006, University of Tokyo, Graduate School of Economics, revised Apr 2013.
    • Handle: RePEc:upd:utppwp:006
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    References listed on IDEAS

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    More about this item

    Keywords

    house price indexes; lognormal distributions; power-law distributions; fat tails; hedonic regression; housing bubbles; market segmentation;
    All these keywords.

    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions

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