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

Author Info

Listed author(s):
  • 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)

Registered author(s):

    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.

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    File URL: http://www.price.e.u-tokyo.ac.jp/img/researchdata/pdf/p_wp006.pdf
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    Paper provided by University of Tokyo, Graduate School of Economics in its series UTokyo Price Project Working Paper Series with number 006.

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    Length: 27 pages
    Date of creation: Dec 2012
    Date of revision: Apr 2013
    Handle: RePEc:upd:utppwp:006
    Contact details of provider: Postal:
    University of Tokyo 702 Faculty of Economics, The University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan

    Phone: +81-3-3812-2111
    Web page: http://www.e.u-tokyo.ac.jp/
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    Keywords: house price indexes; lognormal distributions; power-law distributions; fat tails; hedonic regression; housing bubbles; market segmentation;

    Find related papers by 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

    References listed on IDEAS
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    1. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
    2. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212 National Bureau of Economic Research, Inc.
    3. Takáts, Előd, 2012. "Aging and house prices," Journal of Housing Economics, Elsevier, vol. 21(2), pages 131-141.
    4. Määttänen, Niku & Terviö, Marko, 2014. "Income distribution and housing prices: An assignment model approach," Journal of Economic Theory, Elsevier, vol. 151(C), pages 381-410.
    5. McMillen, Daniel P., 2008. "Changes in the distribution of house prices over time: Structural characteristics, neighborhood, or coefficients?," Journal of Urban Economics, Elsevier, vol. 64(3), pages 573-589, November.
    6. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1567-1606.
    7. John H. Cochrane, 2002. "Stocks as Money: Convenience Yield and the Tech-Stock Bubble," NBER Working Papers 8987, National Bureau of Economic Research, Inc.
    8. Okina, Kunio & Shiratsuka, Shigenori, 2002. "Asset Price Bubbles, Price Stability, and Monetary Policy: Japan' s Experience," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(3), pages 35-76, October.
    9. Xavier Gabaix, 2009. "Power Laws in Economics and Finance," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 255-294, May.
    10. Shimizu Chihiro & Nishimura Kiyohiko G. & Watanabe Tsutomu, 2010. "Housing Prices in Tokyo: A Comparison of Hedonic and Repeat Sales Measures," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(6), pages 792-813, December.
    11. Cropper, Maureen L & Deck, Leland B & McConnell, Kenneth E, 1988. "On the Choice of Functional Form for Hedonic Price Functions," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 668-675, November.
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