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Dissertation: Is there a bubble in the UK housing market? - Coggle Diagram
Dissertation: Is there a bubble in the UK housing market?
House Price Determinants:
House Price Bubbles:
Definition:
"The term is most commonly understood to mean that house prices exceed their fundamental values because homebuyers believe that they can resell the house at an even higher price in the future."
Asal, 2019.
Brunnermeier and Julliard, 2008.
Stiglitz, 1990.
Methods for Identification:
Deviation of fundamentals from historical averages.
User Cost: Bubble may be present when a homebuyer has high expectations about future capital gains and estimates their user cost to be much lower than it actually is, thus causing them to pay much more for a house.
Himmelberg, et al. 2005
Price-Rent Ratio: Expected benefits of owning a house - either through rental income as an investor, or through rent saved as an owner-occupier - should equal the price of the house.
Case and Schiller, 1989
Gallin, 2008
Bourassa, et al. 2016
Price-Income Ratio: High price to income ratio can indicate unrealistic expectations are present, i.e. homebuyers are overconfident that they can sell the house for more than they bought it for.
Gallin, 2006
Himmelberg et al., 2005
McCarthy and Peach, 2004
Cointegration Techniques: ECM and VECM
Holly, et al. 2010
Bergman, et al. 2013
Evidence:
For:
Case and Schiller, 2003
Wheaton and Nechayev, 2008
Oikarinen, 2009
European Commission Report 2016
Bergman, et al. 2013: w/ VECM
Black, et al. 2006
Ambrose, et al. 2013
Against:
McCarthy and Peach, 2004
Himmelberg, et al. 2005
Fox and Tulip, 2014
Claussen, et al. 2011
Dermani, et al. 2016
Bergman, et al. 2013: w/ imputed ratios
Claussen, 2013
Englund, 2011
Mixed
w/ varying methods:
Bergman and Sorensen, 2013
Claussen, et al. 2011
Structural Housing Model: Calculates long-term properties of house price w/ correction mechanism for price adjustments in long-run.
Ambrose, et al. 2013
Dermani, et al. 2016
Mccarthy and Peach, 2004
Turk, 2015
Unit Root Method
Use a unit root test to determine the presence of a bubble by analysing the long-run stationarity relationships in the ratios. A bubble is present if there is a failure to reject a unit root.
Nneji, et al. 2013
Yiu, et al., 2013
Phillips and Yu, 2011