Housing Bubble Research Articles

Geographic reallocation and unemployment during the Great Recession: The role of the housing bust

We provide a spatial general equilibrium model of migration and job searching to study the role the housing bust played in mobility rates and labor market outcomes. We estimate the parameters governing the migration decisions of households using data on state-level migration and labor market patterns from 1991 to 2007 and use the estimated model to characterize the effects of the housing market collapse on labor market outcomes. Our analysis suggests that the housing bust is responsible for 12% of the increase in unemployment as it reduces workers’ reallocation and forces more homeowners to look for jobs in areas with lower job-finding rates.

Vale a pena investir em imóveis? Uma análise da valorização do metro quadrado no setor imobiliário do Espírito Santo

De 2006 a 2013, o mercado imobiliário brasileiro apresentou um crescimento vertiginoso. Entretanto, os investimentos em imóveis têm suscitado questionamentos polêmicos quanto à rentabilidade do negócio, ainda mais quando comparado ao risco assumido, muitas vezes não considerado por investidores. Neste contexto, este trabalho teve como proposta analisar a valorização do metro quadrado em imóveis localizados nas principais cidades do Espírito Santo entre os anos de 2006 e 2013 (pré-crise imobiliária). A metodologia utilizada foi descritiva e exploratória, com análise dos dados e apresentação da valorização do metro quadrado em investimentos imobiliários para cada região estudada. Os resultados sugerem que somente a valorização do imóvel não o torna, em geral, um bom investimento. Ao contrário do senso comum, a evolução do metro quadrado imobiliário apresentou maior grau de incerteza quando comparado à taxa SELIC, além de muitas vezes uma valorização menor que a mesma. Se os anos de 2014 a 2016 fossem considerados, tais resultados teriam sido ainda mais dramáticos.

Paradox of plenty: Norway’s macroeconomic policy dilemmas during the oil price crash, 2014-15

Norway, a country at the top of global rankings in terms of gross domestic product (GDP) per capita and human development was also in an enviable position with large current account and fiscal surpluses, as well as a massive stock of public assets. Then came a shock; between June 2014 and early 2016 oil prices tumbled by more than 70 percent. As a major oil exporter, Norway’s current account was severely impacted but could this actually draw Norway into a macroeconomic crisis? Couldn’t it just fund its way out of the contractionary pressures building up in the economy using its stock of foreign currency reserves being held in a sovereign wealth fund? This article explores the fiscal and monetary policy challenges that Norway faced in preempting falling GDP growth and rising unemployment while at the same time, warding off a housing bubble going bust.

Getting it right or getting it cursed: Auction prices in a residential real estate bubble

AbstractThis is the first study to test for a winner's curse in a bubble market. Our hand‐collected sample comprises the sequence of bids and the experience of the winning bidder at Irish residential real estate auctions, prior to the collapse of the bubble. Portfolios of practitioner‐ and hedonic pricing model‐selected self‐similar properties provide benchmark property price estimates. We show neither real estate investors nor owner occupiers shade auction bids to avoid the winner's curse and both raise bids in line with competition. Winning investor bidders pay more for properties, ride the wave of a property bubble, and potentially exacerbate it.

Short-run momentum, long-run mean reversion and excess volatility: An elementary housing model

We propose an elementary housing model that replicates the key properties of housing bubbles, namely short-run momentum, long-run mean reversion, and excess volatility. We analytically proof that such dynamics can only emerge if homebuyers place sufficient weight on extrapolative expectations.

Acaparamiento de territorios marinos y costeros: dos casos de estudio en el Caribe colombiano

Este artículo presenta los casos de dos comunidades de pescadores artesanales raizales y afrodescendientes en Providencia y Barú (Caribe colombiano), en relación con el acaparamiento de sus territorios colectivos marinos y costeros. Expone la configuración histórica de estos últimos, a través de los usos sociales tradicionales de los ecosistemas y analiza los cambios ocasionados por el desarrollo turístico, la especulación inmobiliaria y algunas iniciativas de conservación que, en el marco de la introducción de las lógicas del capitalismo neoliberal a estos territorios, han desembocado en su progresivo acaparamiento.

Simulating the Change in Young Adult Homeownership Through 2035: Effects of Growing Diversity and Rising Educational Attainment

In this article we highlight the scope of public policy and demographic change for the future path of homeownership. In so doing, we review the literature on the scope of impact of certain policy tools, estimate housing tenure choice models that highlight how sensitive households are to various factors in different time periods to highlight how credit conditions can influence the future path of homeownership, and then simulate the future paths of homeownership in light of prospective changes in young-adult race/ethnicity, education, income, and wealth. The study focuses on prospective changes between 2015 and 2035 to the rate of homeownership among young adults age 25 to 44, prime ages for first-time homebuying. We find that rising education levels—even if minority-white college education gaps were eliminated completely—would only partially reverse the steep declines in young-adult homeownership attainment witnessed since the onset of the housing bust. However, our findings also suggest that the common narrative, which predicts that young-adult homeownership rates will inevitably decline due to increasing racial/ethnic diversity, does not take into account the positive effect of rising educational attainment among minorities on homeownership rates.

House Prices and Consumption: A New Instrumental Variables Approach

Fluctuations in house prices can lead to significant movements in household expenditures. However, empirical studies of this relationship must deal with the endogeneity of house prices. In this paper, we introduce a novel Bartik-like instrument for house prices that consists of the pre-existing local composition of housing characteristics interacted with broad-based changes in the marginal prices of these characteristics. In an application to household-level panel data, we estimate that the elasticity of non-durable consumption expenditures with respect to local house prices is between 0.09 to 0.11. These consumption effects are concentrated among the young and those most likely to be facing tight borrowing constraints. In a decomposition exercise, we show that the identifying variation in the instrument is largely associated with times and locations where house prices have varied the most: during the housing bust of the mid-2000s and in the Western US.

Credit Risk Transfer, Informed Markets, and Securitization

Mortgage-backed securities (MBS) funded the U.S. housing bubble, while the ensuing bust resulted in systemic risk and the global financial crisis of 2007-09. In the run-up to the crisis, MBS pricing failed to reveal the growing credit risk. This article draws lessons from this failure that could inform the use of credit risk transfers (CRTs) to price credit risk. The author concludes that the CRT market, as currently constituted, could have appropriately priced and revealed credit risk during the bubble years because it met three key requirements: 1) transparency, through the full provision of information on the mortgages underlying the CRTs and the standardization of mortgages that arose from the predominance of Fannie Mae, Freddie Mac, and Ginnie Mae in the mortgage market; 2) open pricing in liquid markets; and 3) no counterparty risk. The author also describes areas of GSE reform that could either impair or enhance the ability of the CRT market to limit credit risk going forward, including the possible presence of multiple guarantors and the use of a common securitization platform.

Does Homeownership Protect Individuals From Economic Hardship During Housing Busts?

ABSTRACTDoes homeownership protect individuals from experiencing economic hardships even during housing busts? Does the relationship differ by race and ethnicity? Using the Survey of Income and Program Participation 2008 panel in the United States and controlling for income and various family characteristics, we find that the likelihood of experiencing any hardship is 5.6 percentage points lower for homeowners than for renters without rent subsidies, a reduction of about 25%. Owning a home for more than 10 years provides more protection than owning a home for less than 4 years. Homeownership’s role in shielding people from economic hardship is significant not only for non-Hispanic whites, but also for non-Hispanic blacks and Hispanics. The negative relationship of homeownership to economic hardship offers additional evidence that it is beneficial to own your home, even during housing busts and even for households of color.

Real Estate Soars and Financial Crises: Recent Stories

This paper studies the contribution of real estate bubble to a financial crisis. First, we document symptoms of a real estate bubble along with a slowdown of the real economy and find indicators of an imminent crash of the stock market, triggering a sense of déjà vu from the 2008 crisis. However, we show that the relationship between real estate and financial markets has changed since the crisis. The empirical analyses provide evidence that the monetary policy has recovered its control over mortgage rates, which had been lost prior to the global financial crisis, and that the real estate market does not have a Granger causality relationship with the stock market any more. Findings suggest that an imminent financial market crash is not likely to be catalyzed by a real estate bubble.

The Impact of Economic Crisis in Areas of Sprawl in Spanish Cities

The development of dispersed urbanism in Spain ran parallel to the real estate boom and consolidated a new model of city sprawl based on the expansion of suburban areas. This process, which started in the mid 1980s, came to a halt with the onset of the economic crisis in 2007. With it, construction stopped, mobility fell, and urban growth came to a standstill. The purpose of this article is, firstly, to analyse the recent evolution and chronology of the expansion of dispersed urbanism in the Barcelona Metropolitan Region (BMR) in order to gain an insight into some of its explanatory factors, and secondly, to look into the future middle-term prospects of dispersed urbanism in the BMR and Spain. To this end, we examine trends in the housing market and residential mobility and take stock of the impact of business cycles on them. The conclusion is that dispersed areas still retain their appeal for people in the life stages of the creation and expansion of households. For this reason, an effective economic recovery and a renewed rise in the price of housing in denser cities may contribute to an upturn in the popularity of the dispersed residential model, which nowadays could be considered to be in a ‘lethargic’ phase, waiting for certain factors to concur and reactivate its expansion.

Perspective piece on “Access to long term care after a wealth shock: Evidence from the housing bubble and burst” by Joan Costa Font, Richard Frank, and Katherine Swartz

Perspective piece on “Access to long term care after a wealth shock: Evidence from the housing bubble and burst” by Joan Costa Font, Richard Frank, and Katherine Swartz

SOVEREIGN DEBT CRISIS IN A MONETARY UNION: ACCOUNTING FOR EXCESSIVE DEBT, HOUSING BUBBLES, AND THE TRANSMISSION OF CRISES

Despite vast empirical documentation of the recent sovereign debt crisis in southern Europe, there is little research accounting for the following stylized facts in a single coherent framework: continuous borrowing, high growth, housing bubbles, and current account deficits since the beginning of the European Monetary Union ending with a sudden crisis and subsequent contagion of crisis. We fill this gap by proposing a model and fitting it to the data. Using a growth model with collateral constraints of small peripheral economies in the institution of a monetary union, we analyze the multilayer moral hazards underlying excessive borrowing. Since housing bubbles can support a constant loan‐to‐value (LTV) ratio lower than LTV limits, peripheral economies can lock into a steady‐state Ponzi growth equilibrium with high growth and current account deficits, but these economies become vulnerable to crises. We identify the “self‐fulfilling crisis region” (SFCR), in which the economy grows fast with a seemingly safe LTV ratio, but with a vulnerability to crises. Moreover, a crisis in one sector propagates to other sectors by endogenously expanding their SFCRs. We derive some policy implications on LTV regulations and market psychology. Finally, our calibration exercise presents how bubbles develop and burst along with contagion across sectors, accounting for the data. (JEL E44, F34, O16)

The Social Ecology of Speculation: Community Organization and Non-occupancy Investment in the U.S. Housing Bubble

The housing boom of the mid-2000s saw the widespread popularization of non-occupant housing investment as an entrepreneurial activity within U.S. capitalism. In 2005, approximately one sixth of all mortgage-financed home purchases in the United States were for investment purposes. This article develops a sociological account that links the geographic distribution of popular investment to the social and institutional organization of communities. Regression analyses of 1,566 municipalities from 2000 to 2006 indicate that non-occupant investment (but not conventional owner-occupant investment) occurred at significantly greater rates in places where local development institutions were organized in accordance with laissez-faire principles to a greater degree, where economic activities in other domains were less locally embedded in place, and where greater residential instability produced more tenuous connections between residents and places. The magnitudes of these associations suggest that social organization and cultural-institutional conditions were at least as informative as variations in housing price appreciation in shaping the incidence of investor activity during the bubble. Social organization also moderated the behavioral effects of price appreciation. The article advances research on locally-embedded bases of economic action by examining how community environments provide more or less fertile ground for mass-participatory housing speculation and instrumental orientations toward places as exchange-values.

From Asset Price Bubbles to Liquidity Traps

This paper argues that it is useful to divide the cyclical behavior of modern mixed capitalist economies into four phases: expansion, upper turning period, recession, and lower turning period. This characterization of the business cycle is more demanding and potentially more beneficial than the one currently used by the National Bureau of Economic Research, which identifies only the peak and trough of the cycle. To illustrate the value of this approach, the recent global financial crisis is examined by reviewing the expansion driven by the development of the housing bubble. Then, the beginning of the crisis is regarded as the upper turning period. The initial financial instability evolved into a full crisis during the Great Recession due to its impact on unemployment. Finally, the ending of the crisis during the challenging period of the liquidity trap is analyzed as the lower turning period. Orthodox economic analysis offers valuable insights for both the expansion and recession phases, but can also benefit from behavioral finance and Minsky’s analysis, when fluctuations in the economy extend beyond the business cycle and become financial crises. For financial crises, the upper turning period is Minskyan and the lower turning period is an updated version of the Keynesian-Minskyan liquidity trap. Taleb’s concavity and convexity properties of the upper and lower turning periods also offer valuable insights.

Identifying Bubbles in China’s Property Market for Consumer Financial Well-Being

A sharp increase in Chinese house prices combined with the extraordinary lending growth during the 2000 s has led to concerns of an emerging real estate bubble and impairment of consumer financial well-being. This article studies real house prices relative to fundamental house values. Housing constitutes a large fraction of most household portfolios therefore affect household well-being, and its characteristics are in contrast to what prevails in most financial markets as arbitrage is limited, and hence correction toward fundamental values can be a prolonged process. Using a time-varying present value approach, our findings suggest evidence of bubbles in the Chinese housing market nationally and in representative cities using real-term data. We also find that price dynamics have an important role to play in determining house prices. Moreover, the results reveal that the dominant driving force of house price deviations from fundamental values might be the less than fully rational behavior of investors rather than fundamental factors. This seems plausible in an emerging market such as China.

SUBPRIME MORTGAGES AND LENDING BUBBLES

We consider a model with two types of households; the poor with no initial endowment and the rich with positive endowment; and two types of assets; properties in a poor area and properties in a rich area. In the model, poor agents need credit to buy an asset whereas the rich can draw from their endowment. We show that credit-fuelled housing bubbles sometimes may improve welfare, making the poorer individuals better-off. More precisely, there exist two types of equilibria in both markets: One is a bubble equilibrium, and the other is an equilibrium where asset prices are stable over time. While the poor always obtain a positive surplus in the bubble equilibrium, this is not necessarily true for the rich. Our results suggest that there may be scope for market interventions aimed at sustaining the value of assets held by credit-constrained agents after the burst of a credit bubble.

KONUT FİYAT ENDEKSİ VERİLERİNİN KLASİK AYRIŞTIRMA VE ARIMA YÖNTEMİ İLE TAHMİN EDİLMESİ

Since the late 1990s, the rapidly developing housing sector worldwide and countries’ economic growth targeting by this sector shifted the whole interest to this area. Turkey is also one of those countries with its housing sector activities both domestic and abroad. Hence, with the effects of the 2008 crisis, the housing price index, which has started to increase again, has become the subject of the most recent follow-up and interpretation in our country. In response to a very high level housing price index, the fact that the supply has reached a certain degree of saturation and that the demand side has not met this level has led to comments that the “real estate bubble will burst” in the near future. In this study, forecasting values for the period up to August 2018 are presented by using the two methods of classical decomposition method and ARIMA model that are used for forecasting in the time series. Monthly housing price index data for the period of 2010:01 – 2017:12 is employed and the results obtained from two different models are compared, as a result, analyzes are made for the housing sector depending on the forecasting values of housing price index. According to the results obtained, both methods clearly shows that housing price index is on a declining trend.

Towards Smart Urban Regeneration: Findings of an Urban Footprint Survey in Port Louis, Mauritius

The Smart City Scheme, as part of the Smart Mauritius initiative, adopted by the Government of Mauritius in 2014, heavily incentivised the emergence of new smart cities in greenfields. The resulting migration of business and residents from existing cities to new cities affected the liveability standard of existing cities and encouraged property speculation. This shift reduced home pricing affordability further from the grasp of young professionals. With the Mauritian Landlord and Tenant Act of 1999 discouraging investment in Mauritian city centres, property developers were additionally encouraged to invest in housing projects in these emerging Smart Cities. As part of the Smart Urban Regeneration strategy of Port Louis that sought to reduce competition between new and existing cities, the provision of housing was seen as paramount to enabling the Smart Cities concept as promoted by the Government. The findings of this paper, which explores the urban footprint of Port Louis through field survey, provides insights, as to the components of the city, that can assist policy-makers and developers to better shape projects that are more responsive to the Smart Urban Regeneration plan.