Testing Housing Markets for Episodes of Exuberance: Evidence from Different Polish Cities

Janusz Sobieraj,Dominik Metelski

doi:10.3390/jrfm14090412

Janusz Sobieraj, Dominik Metelski

Open Access

https://doi.org/10.3390/jrfm14090412

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Abstract

In the study we use the right-tail unit root test to analyse the presence of mild explosive dynamics (exuberance) in housing prices of the 17 largest Polish cities in the period 2006–2021 (for quarterly data). In terms of real prices from the secondary market, we were able to demonstrate the existence of episodes of mild explosive dynamics for 13 of the 17 cities studied. When we changed the context of the study and performed the same tests for the price-to-income ratio, we found that episodes of price exuberance could be indicated only in the case of two cities. The overall conclusion is that rising average incomes tend to mitigate the explosive dynamics and change the context in which the whole issue of housing bubbles is viewed. The answer to the question of whether there is indeed already a situation of price bubbles in local housing markets in Poland is of course crucial for those interested in buying or selling a housing unit (i.e., the participants of this market), but it must also remain important for the monetary authorities implementing monetary and macroprudential policies in Poland.

Highlights

supremum augmented Dickey–Fuller (SADF) tests by their nature are very conservative in the context of detecting episodes of explosive dynamics, the situation with generalised sup Augmented Dickey–Fuller (GSADF) is quite different. When it comes to real housing price changes, the GSADF method allowed us to indicate periods of price exuberance in 13 out of 17 cases
When we examined changes in the price-toincome ratio, which reflect the parity of buyers’ purchasing power resulting from their financial capacity, the GSADF tests indicated the existence of explosive dynamics in only 2 out of 17 cases
For panel data of real housing prices, the results indicate that the null hypothesis of a unit root can be rejected at all conventional levels, providing strong evidence of mild a unit root can be rejected at all conventional levels, providing strong evidence of mild explosive dynamics in housing prices time series

Summary

Introduction

Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. Poland is currently experiencing the second fastest increase in housing prices in Europe (after Luxembourg). At least, this is according to the data published by Eurostat (Eurostat 2021). Taking the average of transaction prices on the secondary market of

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