Search results

This paper aims to investigate the presence of a housing bubble using Swedish data from 1986Q1-2016Q4 by using various methods.

First, the authors use affordability indicators and asset-pricing approaches, including the price-to-income ratio, price-to-rent ratio and user cost, supplemented by a qualitative discussion of other factors affecting house prices. Second, the authors use cointegration techniques to compute the fundamental (or long-run) price, which is then compared with the actual price to test the degree of Sweden’s housing price bubble during the studied period. Third, they apply the univariate right-tailed unit root test procedure to capture bursting bubbles and to date-stamp bubbles.

The authors find evidence for rational housing bubbles with explosive behavioral components beginning in 2004. These bubbles do not continuously diverge but instead periodically revert to their fundamental value. However, the deviation is persistent, and without any policy correction, it takes decades for real house prices to return to equilibrium.

The policy implication is that monetary policy designed to contain mortgage demand and thereby prevent burst episodes in the housing market must address external imbalances, as revealed in real exchange rate undervaluation. It is unlikely that current policies will stop the rise of house prices, as the growth of mortgage credit, improvement in Sweden’s international competitiveness and the path of interest rates are much more important factors.

This paper aims to use the user costs approach to identify the periods of over- and under-valuation in the Baltic residential real estate markets.

Three alternative estimates of the user costs of homeownership in the Baltics are computed: one that does not discriminate between the leveraged and unleveraged parts of a house and the other that takes loan-to-value ratios into account.

The approach successfully identifies the overheating that took place in the Baltic real estate markets prior to the crisis of 2009 and shows that there is significant upward pressure for the housing prices in the Baltics in the low interest rate environment that became prevalent ever since.

The paper uses only the current values of the fundamentals to compute the user costs. The framework could be augmented to account for the expected future developments of the fundamentals.

The macroprudential policy makers should monitor the developments in the Baltic residential real estate markets closely and be ready to act because an increase in the price-to-rent ratios might seem sustainable, given the current low interest rates, but could potentially bring harmful volatility when the monetary policy normalises.

This paper builds a novel data set on the real estate markets of the Baltic countries and is the first to derive the user costs of homeownership in the region. It is also among the first to identify periods of housing price misalignments from their fundamental values in the Baltic States.

The purpose of this study is to determine the Turkish housing price and rent dynamics among seven big cities with a unique monthly data set over 2003–2019. The secondary purpose is to examine bubble dynamics within the price convergence framework through alternative tests.

The paper conducts two autoregressive distributed lag (ARDL) cointegration estimates for housing prices and rents and applies conditional error correction model to investigate the long-run drivers of the Turkish housing market. The authors compare ARDL cointegration in-sample forecasts and discounted cash flow (DCF) estimates with actual prices to determine the timing, magnitude and collapse period(s) of bubbles within the price convergence framework. In particular, the generalized sup augmented Dickey–Fuller (GSADF) approach time stamps multiple explosive price behaviors.

The ARDL results confirm the theory of investment value by addressing mortgage rates, the price-to-rent ratio and rents as the fundamental factors of house prices. The price-to-rent ratio offers a comparison mechanism among houses deciding to buy a new house in which rents increase monthly real estate investment returns, and mortgage rates act as the discount rate. One key finding is that these dynamics have a greater impact on house prices than mortgage rates. Furthermore, the ARDL, DCF and GSADF findings exhibit temporal overvaluations rather than bubble signals, implying that housing price appreciations, including explosive behaviors, are consistent with fundamental advances.

This paper is considered to be innovative in determining housing market dynamics through two different ARDL estimates for the Turkish housing price index and rents in real terms as dependent variables. The authors compare the boom and collapse periods of the real housing price index and its fundamentals via the GSADF test. A final key feature of this research is its extensive data set, with 11 different regressors between 2003 and 2019.

The purpose of this paper is to compute an aggregate misalignment index using a multiple indicator approach to identify under- or over-valuation of house prices in Malta based on fundamentals.

A total of six indicators are used that capture households, investors and system-wide factors: the house price-to-Retail Price Index ratio, the price-to-hypothetical borrowing volume ratio, price-to-construction costs ratio, price-to-rent ratio, dwelling investment-to-GDP ratio and the loan bearing capacity. The weights are derived using principal component analysis. The analysis is performed using both the house price indices of the National Statistics Office (NSO) and the Central Bank of Malta (CBM), which are based on contract and advertised prices, respectively.

House prices in Malta were overvalued by around 20 to 25 per cent in the pre-crisis boom. This disequilibrium started to be corrected following the decline in house prices, with the CBM and NSO house price cycles reaching a trough in 2013 and 2014, respectively. At the trough, house prices were undervalued by around 10 to 15 per cent. Since then, house prices started to recover although the recovery in advertised prices was more pronounced compared to that based on contract prices. In mid-2017, advertised house prices were slightly overvalued, while contract prices still have to reach their equilibrium level. The dynamics from the misalignment index, including its peaks and troughs, are remarkably similar to the range derived from statistical filters.

Estimates of house price misalignment have both economic and financial stability implications.

This paper allows for a decomposition of the house price cycle, tailored for the particular characteristics of the Maltese housing market. It also takes into account the relationship between house prices and private sector rents, which in recent years have been buoyed, among other factors, by the high inflow of foreign workers and changing patterns in the tourism industry.

Beijing and Shanghai have been the leading housing markets in urban China. In the late half of the 2000s, both metropolises experienced a pronounced process of housing price appreciation. The purpose of this paper is to examine whether there exist housing price bubbles in the two largest cities in China.

The study is based on a combination of different quantitative indicators: a comparison of housing market prices with the rational expectation price, mortgage loans, and the ratios of price to income and to rent. Moreover, the statistical tool of control chart is introduced to quantify housing bubbles.

The study shows that Beijing appears to have been on the way of forming a housing price bubble between 2005 and 2008, and that there perhaps existed a housing bubble in Shanghai from 2003 to 2004. It appears that the housing market cycle in Beijing may be divided into three stages: the cycle peak stage (1991‐1997), the cycle trough stage (1998‐2003) and the second cycle peak stage (2004‐2008).

In an attempt to explain the possible existence of housing bubbles in Beijing and Shanghai, this paper uses an integrated strategy involved with such fundamentals as interest rates, rent, income and GDP. In particular, the control chart, based on per capita GDP, is introduced to identify a housing bubble.

This paper aims to examine the effects of “quality” as well as fundamentals on house prices in eight capital cities in Australia from 1985-2011. Two types of quality are considered: housing quality, proxied by “value of alterations and additions”, “value of new residential buildings”, “floor area” and “site area”; and living environment quality, proxied by “overall crime rate”.

The application of dynamic panel model, in which the lagged values of house prices are considered, is to reveal the dynamic persistence of house prices over time and to investigate the heterogeneity of house prices across cities in Australia.

Fundamental variables including “unemployment rate”, introduction of “GST” (Goods and Service Tax), “real mortgage rate” and “price-to-rent ratio” demonstrated their consistent and expected effects on property prices in Australia. More importantly, “value of new residential buildings” – indicating housing quality – and “overall crime rate” – representing environmental living quality – also demonstrated statistically significant effects on house prices.

As one of the few studies that attempt to take housing/living-environment quality into account in analysing house prices, it gives households, researchers and policy-makers a better understanding of the role of “quality” in the variation of house prices.

The price-to-rent ratio is often regarded as an important indicator for measuring housing market imbalance and inefficiency. A central question is the extent to which house prices and rents form part of the same market and thus whether they respond similarly to parallel stimulus. If they are close proxies dynamically, then this provides valuable market intelligence, particularly where causal relationships are evident. Therefore, this paper aims to examine the relationship between market and rental pricing to uncover the price switching dynamics of residential real estate property types and whether the deviation between market rents and prices are integrated over both the long- and short-term.

This paper uses cointegration, Wald exogeneity tests and Granger causality models to determine the existence, if any, of cointegration and lead-lag relationships between prices and rents within the Belfast property market, as well as the price-to-rent ratios amongst its five main property sub-markets over the time period M4, 2014 to M12 2018.

The findings provide some novel insights in relation to the pricing dynamics within Belfast. Housing and rental prices are cointegrated suggesting that they tend to move in tandem in the long run. It is further evident that in the short-run, the price series Granger-causes that of rents inferring that sales price information unidirectionally diffuse to the rental market. Further, the findings on price-to-rent ratios reveal that the detached sector appears to Granger-cause those of other property types except apartments in both the short- and long-term, suggesting possible spill-over of pricing signals from the top-end to the lower strata of the market.

The importance of understanding the relationship between house prices and rental market performance has gathered momentum. Although the house price-rent ratio is widely used as an indicator of over and undervaluation in the housing market, surprisingly little is known about the theoretical relationship between the price-rent ratio across property types and their respective inter-relationships.