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Bubbles in US Regional House Prices: Evidence from House Price/Income Ratios at the State Level

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We investigate the presence of bubbles in the US house price-income ratio at the state level by applying the right-tailed unit root test of Phillips, Shi and Yu (2015, PSY) to data from January 1975 to December 2014. Based on a model specification with an intercept, we can identify ‘collapse’ episodes, ‘collapse and recovery’ episodes in addition to bubbles. The absence of an intercept in the null leads to identification of only potential bubbles. We find evidence of bubbles in several states in the 1980s (such as California, Hawaii, Massachusetts and New York), which coincides with some existing studies that investigate housing bubbles or booms and busts using a range of alternative approaches. Our results show the existence of a housing bubble that originates in the early 2000s and collapses in the mid-2000s in more than 20 States and the DC. We conclude that this housing bubble was localized and not a national phenomenon and that the bubbles of the 2000s were more widespread than the 1980s. We also found that the exclusion of an intercept in the unit root null hypothesis will affect the asymptotic theory and date-stamping outcomes for the PSY approach which translates empirically to evidence of ‘no exuberance’ in several of the states' house prices which otherwise would have suggested bubbles.

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  • Yang Hu & Les Oxley, 2016. "Bubbles in US Regional House Prices: Evidence from House Price/Income Ratios at the State Level," Working Papers in Economics 16/06, University of Waikato.
  • Handle: RePEc:wai:econwp:16/06
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    Cited by:

    1. Ye Chen & Peter C.B. Phillips & Shuping Shi, 2020. "Common Bubble Detection in Large Dimensional Financial Systems," Cowles Foundation Discussion Papers 2251, Cowles Foundation for Research in Economics, Yale University.
    2. Arsova, Antonia & Karaman Örsal, Deniz Dilan, 2021. "A panel cointegrating rank test with structural breaks and cross-sectional dependence," Econometrics and Statistics, Elsevier, vol. 17(C), pages 107-129.
    3. Hu, Yang & Oxley, Les, 2018. "Bubble contagion: Evidence from Japan’s asset price bubble of the 1980-90s," Journal of the Japanese and International Economies, Elsevier, vol. 50(C), pages 89-95.
    4. Xie, Zixiong & Chen, Shyh-Wei & Wu, An-Chi, 2019. "Asymmetric adjustment, non-linearity and housing price bubbles: New international evidence," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    5. Ting Lan, 2019. "Intrinsic bubbles and Granger causality in the Hong Kong residential property market," Frontiers of Business Research in China, Springer, vol. 13(1), pages 1-15, December.
    6. Shanggang Yin & Zhifei Ma & Weixuan Song & Chunhui Liu, 2019. "Spatial Justice of a Chinese Metropolis: A Perspective on Housing Price-to-Income Ratios in Nanjing, China," Sustainability, MDPI, Open Access Journal, vol. 11(6), pages 1-15, March.
    7. Martínez-García, Enrique & Grossman, Valerie, 2020. "Explosive dynamics in house prices? An exploration of financial market spillovers in housing markets around the world," Journal of International Money and Finance, Elsevier, vol. 101(C).

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    More about this item

    Keywords

    bubbles; generalized sup ADF test; US regional house prices; house price-income ratio;
    All these keywords.

    JEL classification:

    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
    • R19 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Other
    • R39 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other

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