Testing for House Price Bubble in Seoul, Korea

Abstract

This study identifies bubbles in Seoul housing markets using generalized supremum ADF (GSADF) test. Our empirical results reveal that bubbles are detected across all income quintile during sample period. Considering our results such as the magnitude of test statistics, duration periods of bubbles and the most prominent peaks in all GSADF, each group of households in income quintile would have experienced different bubble episodes such as different entry barriers to the housing markets. Specially, the households of ‘Fifth’ income quintile would have experienced relatively week bubble episodes compared to the other income quintile. This implies that the households with less income would face with the unfavorable environment when the house prices are highly volatile. Moreover, when house prices sharply increase and step into bubble periods, the less income households could encounter higher entry barrier to housing markets. Consequently, income gaps among households could magnify the differences of housing asset value among income quintile. This finding helps policy makers to prioritize which households of income quintile would be required attention in Seoul housing markets.