House Prices, Fundamentals and Bubbles
Year: 2006
Type: article
Abstract: : This paper studies actual (real) house prices relative to fundamental (real) house values. Such a focus is warranted since housing constitutes a large fraction of most household portfolios, and its characteristics are such that, in contrast to what prevails in financial markets, arbitrage will be limited and hence correction toward ‘true’ value is likely to be a prolonged process. Using UK data and a time‐varying present value approach, our results preclude the existence of an explosive rational bubble due to non‐fundamental factors. We further find that intrinsic bubbles have an important role to play in determining actual house prices although price dynamics appear to impact, particularly in periods of strong deviation from fundamental value. Price dynamics are found to be driven by momentum behaviour.
Authors: Angela Black, Patricia Fraser, Martin Hoesli
Institutions: University of Geneva, University of Aberdeen
Language: English
Topic: Housing Market and Economics
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2170309698