Housing Bubble Research Articles

Empirical Distribution of the U.S. Housing Market during the Great Recession: Nonlinear Scaling Behavior after a Major Crash

This study focuses on the real estate bubble burst in the US housing market during 2007–2008. We analyze the dynamics of the housing market crash and the after-crash sequence during the Great Recession. When a complex system deviates away from its typical path by the occurrence of an extreme event, its behavior is strongly characterized as nonstationary with higher volatility. With the utilization of a robust method, we present the characteristics of the aftershock period and provide useful information about the spatial distribution and the decay process of the aftershock sequence in terms of time. The returns of the housing price indices are well approximated by the empirics of a power law. Although we deal with low-frequency data, a time power-law relaxation pattern is identified. Our findings align with those in geophysics, indicating that the value of the relaxation parameter typically hovers around one and varies across different thresholds.

HOUSE PRICE VOLATILITY IN CHINA: A PERVASIVE PATTERN WITH GEOGRAPHIC DISPARITY

The booming real estate sector has been regarded as the “gray rhino” risk emerging in China over the past decade. Yet, the house price volatility per se has not been thoroughly examined. Filling the gap in the literature, this paper explores the house price volatility and its determinants for 70 large and medium-sized cities in China, using an extensive monthly data set from 2005 to 2019. We find evidence of significant geographical disparities in both the GARCH effects and the best-fitted volatility specification. Significant GARCH effects are found in 57 cities, among which 40% of cities show a persistent volatility pattern. We also find that both the house price volatility pattern and the associated volatility value are affected significantly by education and healthcare amenities.

Policy Implications of Fiscal Deficit and Its Trends in India: An Econometric Analysis

"The paper attempted to explore the trend of fiscal deficit in India from 1993-94 to 2022-23 and also to determine whether the growth patterns of fiscal deficit have changed before and after the Housing Bubble Crisis of 2008. The study too made an effort to analyse the causality among fiscal deficit, government revenue and expenditure in India. Therefore, the paper follows a diagnostic research design, and is based on secondary data, collected from the Budget and finance documents of the Government of India. Econometrics tools including eight different regression models and CAGR (Compound Annual Growth Rate) were used. And the study revealed that the fiscal deficit follows a log-linear trend, and as per the VDA (Variance Decomposition Analysis) model in the long run the variability of fiscal deficit is explained by 66.09% of govt. expenditure, for the sample period. Thus, the study recommends to efficiently utilise the govt. expenditure to have a proper management of the fiscal deficit in India."

The Relations Among Loose Monetary Policy and the Housing Bubble and the Financial Crisis of 2008

This paper examines whether the loose monetary policy was a key factor in the 2006 housing bubble and then led to the financial crisis of 2008. It analyses the situation of the US economy during the early 2000s. It presents how the role of the Federal Reserves Monetary strategies such as the Expansionary Monetary Policy created an easy credit environment and investors' overconfidence in the US. Furthermore, this paper delves into the Taylor rule and explores the principle for adjusting nominal interest rates based on economic fluctuation and inflation. This framework is crucial in understanding the policy decisions of that time. In addition, this paper outlines the different perspectives on the Monetary Policy from the John B. Taylor and Bernanke who was defend for the Federal Reserve that fears of deflation and the restrictions brought about by the liquidity trap during that time. The paper also reveals labour market, including unemployment and output gaps, indicated economic strength but also inflationary pressure. In conclusion, this paper emphasizes the importance of a multifaced approach to monetary policy analysis in understanding the intricate factors that led to this pivotal event in economic history.

Bubbly booms and welfare

We show the competing effects of a housing bubble on the real economy by developing a multi-sector dynamic model with housing production. On the one hand, firms can sell or collateralize their housing, so a housing bubble helps firms obtain credit to finance their investment and expand production. On the other hand, a boom in the housing sector crowds out labor in the non-housing sector. We show that housing booms can reduce social welfare both in the steady state and in the transitional dynamics only when the production externalities in the non-housing sector are sufficiently large. We quantitatively evaluate our model and demonstrate its robustness with model extensions. Policies that target labor, housing transactions and output generate different welfare implications.

Comparison between the impact of the brazilian real estate crisis and the critical period of Covid 19 on the financial economic indicators of companies

Until 2013, the real estate sector experienced an excellent moment due to favorable economic conditions and the high housing deficit in the country, and it can be said that the real estate market went through a period of “euphoria”. But as of 2014, this growth in the sector was interrupted by a strong crisis due to the oversupply of real estate units, and the lack of bank credit from customers for the acquisition of real estate. This period of decline lasted, on average, until 2018, when companies in the sector resumed growth, but shortly thereafter, in early 2020, the Covid19 pandemic brought new challenges for companies, providing negative as well as positive impacts. This work aimed to study the economic and financial indicators of some important developers (Cyrela, Even, EZTEC, MRV and Direcional) in the national market, listed in the IMOB sectorial index of the Stock Exchange, to measure the evolution of these indicators during the period of 2013 to 2021, a period in which the construction sector experienced two crises of global proportions. As shown in the results, the main financial economic indicators (liquidity, indebtedness, profitability, and turnover or activity) had a behavior with only negative impacts in the 2014 real estate crisis. but in the Covid crisis these impacts were predominantly positive

New-Build Speculation and the Financialization of Urban Development in the Global South: A Perspective from Phnom Penh, Cambodia

This article analyzes how urban development and property management strategies shape and accelerate new-build speculation (i.e., speculation mechanisms attached to the development of newly built real estate projects) in Phnom Penh (the capital of Cambodia), a city experiencing a growing financialization of its real estate markets. By discussing dominant conceptions of property speculation within critical research in geography and urban studies, the article shows that speculation has primarily been seen as a fictitious and unproductive form of capital accumulation rather than as an effective mechanism of urban production. Analyzing the development of mixed-use, large-scale, and condominium projects, the article argues that not only does property speculation participate in shaping real estate development but also that the production and management of real estate projects “engineer” property speculation and the spatialization logics of real estate financialization. Four main mechanisms of new-build speculation are identified: the design of speculative urbanity, the refining of the liquidity of real estate assets, the spatialization of speculation, and the production of territorial investment platforms. Ultimately, the article discusses how the intensification of the construction of large-scale, mixed-use, and condominium projects in Global South cities is supporting a speculative turn of urban development in so-called frontier markets.

Quantitative Easing’s Effects on the U.S. Housing Market

As the housing bubble burst in the United States, the buildup of subprime lending led to the Global Financial Crisis. The Federal Reserve desperately slashes interest rates to reverse the economic recession, but the Zero Lower Bound significantly hindered the policy's future effectiveness with concerns of an existing liquidity trap. As a result, the unprecedented Quantitative Easing became the policymakers' last resort. Through the large-scale purchases of financial assets including mortgage-backed securities (MBS) and government bonds, the Fed attempts to stimulate the economy through reserve creation and instilling downward pressure on future interest rates. This literature review discusses how QE specifically affected the U.S. housing market during the GFC. An analysis is conducted on various social aspects and stakeholders by identifying the various channels through which QE is transmitted. The signaling, bank lending, and refinancing channels all suggest that MBS had the greatest effect on market expectations, bank behaviors, and consumer spending. As a result, many were many spillover effects into real estate, notably on asset prices, employment, and investment. Even though literature has criticized QE's ineffectiveness and its potential drawbacks, the unconventional monetary policy certainly played an essential role in preventing a worse outcome and effectively demonstrating its ability to reduce interest rates, generate wealth, and revive the economy.

Historicised exploration and middle-range theoretisation of the housing regime in urban China

In comparative housing studies, the positioning of the Chinese housing regime is contested as to whether it converges to a (neo)liberal path or is a unique hybrid model. This paper argues that these disputes derive from the static and ethnocentric nature of welfare regime typologies and the inadequate political vision in explaining the housing regime in urban China. This study is dedicated to advancing the discussion with a historicised inquiry and a more holistic view of a balance of causes. The grounded theory methodology is adopted to avoid the omissions and biases of the priori knowledge. The materials analysed include 473 national policy documents, conference reports and official media reports in housing, economic, political and other related areas. We summarised three progressive stages of housing regime in the (quasi-)authoritarian and post-developing contexts, from 1) an underinvested social housing sector to reserve sufficient funds for industrialisation, 2) a real estate boom with a residualised social housing sector, to 3) enlarging social housing provision for productive groups under the overinvested and crisis-ridden real estate market. We attribute China’s housing system to the productivist feature with authoritarianism and the pursuit of nation-building and economic development in a post-developing state, with the underlying logic of capital switching.

Geography of housing bubbles in Shanghai: a study of price-to-rent ratios at the community level

Scholars are divided over the existence of a housing bubble in China and the effectiveness of the price-to-rent [(P/R)] ratio in detecting it. This disagreement may stem from the absence of region-specific (P/R) ratios and the unique socioeconomic, cultural, and institutional characteristics of Chinese cities, which challenge the application of international standards in measuring housing bubbles. This study contributes to the debate by examining the distribution and spatial dynamics of community-level (P/R) ratios in Shanghai from a spatial and geographical perspective. We found that in 2018, over 90% of communities in Shanghai had a (P/R) ratio ranging from 50 to 80, a range considered high by international standards. Furthermore, our comparison of 2018 (P/R) ratios with foreclosure cases in 2021 reveals that while (P/R) ratios are not directly comparable across different cities, they can indicate the relative severity of housing bubbles at an intra-urban level. Our regression and machine learning models indicate that (P/R) ratios are collectively influenced by fundamental and non-fundamental determinants. However, fundamental determinants like GDP per capita and public schools have only a marginal positive impact compared to speculative elements like proximity to the Central Business District (CBD) and parks. Other key fundamentals like job opportunities and average salary are insignificant. This suggests that Shanghai’s housing market was likely experiencing a bubble in 2018.

Assessing Dubai’s housing market price cycles and bubble risk

ABSTRACT This study investigates the presence of a real estate bubble in Dubai’s housing market, considering the recent surge in prices. Using monthly city-level housing price data and a recursive unit root test designed for real-time bubble detection, the study covers the period from 2008 to the second half of 2023. The findings reveal that, despite the recent price increases, there is no significant evidence of a real estate bubble in Dubai’s property market. This suggests that no substantial price correction is expected in the near term, which is crucial given the heightened financing costs and potential impact of rising interest rates.

Do high house prices promote the development of China's real economy? Empirical evidence based on the decomposition of real estate price.

Moderate rising of house prices are beneficial to the economic development. However, over high house prices worsen the economic distortions and thus hinder the development of the real economy. We use the stochastic frontier models to calculate the fundamental value in the housing in Chinese large and medium cities, and then obtain indexes which could measure the house prices' deviations from the fundamental value. With the macroeconomic data in the city-level, this paper empirically investigates the effects of the house prices' deviations on macro-economic variables like consumption, investment and output. The study reveals that the housing bubble exists in most Chinese cities, and first-tier cities fare the worst. House prices over the fundamental value, which could increase the scale of real estate investment, bring adverse impacts on GDP, as it causes declining civilian consumption and discourages real economy's investment and production. The encouragement and the discouragement on macroeconomy caused by house prices' deviation from its basic value take turns to play a key role in the process of China' eco-nomic growth. In the early stage of China's economic growth, the encouragement effect predominates. As urbanization and industrialization gradually upgrade to a higher level, the discouragement effect takes charge.

Comparative analysis of machine learning models in predicting housing prices: a case study of Prishtina's real estate market

Purpose The purpose of this study is to carry out a comparative analysis of four machine learning models such as linear regression, decision trees, k-nearest neighbors and support vector regression in predicting housing prices in Prishtina. Design/methodology/approach Using Python, the models were assessed on a data set of 1,512 property transactions with mean squared error, coefficient of determination, mean absolute error and root mean squared error as metrics. The study also conducts variable importance test. Findings Upon preprocessing and standardization of the data, the models were trained and tested, with the decision tree model producing the best performance. The variable importance test found the distance from central business district and distance to the road leading to central business district as the most relevant drivers of housing prices across all models, with the exception of support vector machine model, which showed minimal importance for all variables. Originality/value To the best of the author’s knowledge, the originality of this research rests in its methodological approach and emphasis on Prishtina's real estate market, which has never been studied in this context, and its findings may be generalizable to comparable transitional economies with booming real estate sector like Kosovo.

How does the loosened monetary the policy led to the housing bubble

in the late 1980s, to avoid the negative impact of the yen’s devaluation, the Bank of Japan tried to lower interest rates, reviving the economy. Unfortunately, the closeness of monetary policy has spurred more credit expansion by financial institutions, resulting in a rise in the money supply. Plus, the stock and property markets had uncontrollably expanded according to the wrong monetary policy. Looking at other countries, high housing prices become a common phenomenon in society; how to stabilize housing prices without making the economy depressed, Japan’s lessons are worth learning.

Heterogeneity in household consumption behavior: The role of inequality and financial instability

We analyze, using the micro data of the Household Financial Survey (HFS) of the Bank of Spain, the consumption consequences of the household balance sheets and debt accumulation during the real estate bubble of 2002–2005, the Great Recession (2008–2011) and the subsequent economic recovery phase (2014–2017). Using quantile regression models, we find heterogeneity in household consumption behavior with respect to income and net worth levels, and in response to changes in household net worth in the last two periods. During the considered real estate bubble period, this heterogeneity in behavior is diminished, and only occurs in relation to the level of net wealth, in line with Hyman Minsky’s Paradox of Tranquility. These findings favor the post-Keynesian theory on consumption. The greater inequality leads to a higher propensity of certain households to consume in response to changes in housing and financial net worth. This is compatible with the relative income hypothesis extended in expenditure cascades models. Otherwise, households will be willing to take on more risk during economic boom periods associated with a real estate bubble, which translates into debt-financed consumption that virtually makes such heterogeneity practically disappear.

Impacts of macroeconomic factors on the real estate bubble in Vietnam's big cities with industrial zones

Impacts of macroeconomic factors on the real estate bubble in Vietnam's big cities with industrial zones

Housing Tenure, Consumption and Household Debt: Life-Cycle Dynamics During a Housing Bust in Spain

Housing Tenure, Consumption and Household Debt: Life-Cycle Dynamics During a Housing Bust in Spain

An Agent-Based Model of the Housing Market Bubble in Metropolitan Washington D.C.

An Agent-Based Model of the Housing Market Bubble in Metropolitan Washington D.C.

Differences in euro‐area household finances and their relevance for monetary‐policy transmission

This paper quantifies mechanisms through which heterogeneity in household finances affects the transmission of monetary policy, considering housing tenure choices over the life cycle. Our analysis also identifies challenges for monetary policy related to housing busts. It focuses on the four largest economies in the euro area: France, Germany, Italy, and Spain. Through the lens of our model, we find that home ownership and endogenous transitions from renting to owning are key elements for the extent of cross‐country asymmetries in aggregate consumption responses to changes in the real interest rate. Across groups with different housing tenure, we find that the consumption response of homeowners to interest rate changes tends to be larger than the response of renters, particularly if these homeowners are indebted and do not adjust their illiquid housing wealth.

Are There Housing Bubbles in Seoul Metropolitan Areas?: Evidence from Right-Tailed Unit Root Test

This study examines the explosive behaviors of house prices in Seoul and its metropolitan areas during 2008Q1~2023Q1. In order for the relationship between house prices and cash flows to reflect better the Korean housing market, this study adopts price-to-income ratio, real transaction-based house prices and personal income. Based on the generalized supremum ADF (GSADF) test, our empirical findings show that housing bubbles are identified in all three markets. According to the starting period, duration periods, and magnitude and prominent peaks among GSADF statistics, the bubbles in Seoul housing market appear to be most serious and further be transmitted to the housing markets of its metropolitan area, Incheon and Gyeonggi-do. Since the methodology used in this study provides policy-makers and investors with real-time information on bubbles, they could formulate a better early warning system to tackle the bubble problem. Specially, our empirical finding helps policy makers to prioritize Seoul over the other housing markets to cope with ongoing bubbles.