Bubble Detective: City-Level Analysis of House Price Cycles

Bubble Detective: City-Level Analysis of House Price Cycles
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Volume/Issue: Volume 2023 Issue 033
Publication date: February 2023
ISBN: 9798400231537
$20.00
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Topics covered in this book

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Economics- Macroeconomics , Economics / General , House prices , bubbles , recursive unit root test , city-level , Lithuania , house price correction , house price cycle , test result , econometric procedure , housing boom , Housing prices , Asset bubbles , Real estate prices , Asset prices , Housing , Global

Summary

This paper investigates house price dynamics at high frequency using city-level observations during the period 1994-2022 in Lithuania. We employ multiple time series-based econometric procedures to examine whether real house prices and house price-to-rent ratios exhibit explosive behavior. According to these recursive right-tailed test results, we reject the null hypothesis of no-bubble and find evidence for long and multiple periods of explosive behavior in the real estate market in all major cities during the sample period. While the size of bubbles varies across cities, especially when we use the house price-to-rent ratio, there is clearly a similar boom-bust pattern. Large house price corrections can in turn have adverse effects on economic performance and financial stability, as experienced during the global financial crisis and other episodes in history.