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Are Housing Bubbles Contagious? A Case Study of Las Vegas and Los Angeles Home Prices

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  • Mary Riddel

Abstract

This paper asks whether speculative house-price pressure in an economic center can spill into related housing markets. In other words, are bubbles contagious? I develop a theoretical model that allows for speculative price appreciation to spread from one market to another. I estimate an error-correction model using quarterly housing data for Las Vegas and Los Angeles and fundamental market variables from 1978 Quarter 2 through 2008 Quarter 1. Las Vegas prices show significant persistence and adjust slowly to disequilibrium. Contagious price and income growth from the Los Angeles market sustained by naïve expectations contributed to the bubble that formed in Las Vegas

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  • Mary Riddel, 2011. "Are Housing Bubbles Contagious? A Case Study of Las Vegas and Los Angeles Home Prices," Land Economics, University of Wisconsin Press, vol. 87(1), pages 126-144.
    • Handle: RePEc:uwp:landec:v:87:y:2011:i:1:p:126-144
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    Cited by:

    1. Jose Eduardo Gomez-Gonzalez & Juliana Gamboa-Arbeláez & Jorge Hirs-Garzón & Andrés Pinchao-Rosero, 2018. "When Bubble Meets Bubble: Contagion in OECD Countries," The Journal of Real Estate Finance and Economics, Springer, vol. 56(4), pages 546-566, May.
    2. Wang, Peijie & Brand, Steven, 2015. "A new approach to estimating value–income ratios with income growth and time-varying yields," European Journal of Operational Research, Elsevier, vol. 242(1), pages 182-187.
    3. Hu, Yang & Oxley, Les, 2018. "Bubble contagion: Evidence from Japan’s asset price bubble of the 1980-90s," Journal of the Japanese and International Economies, Elsevier, vol. 50(C), pages 89-95.
    4. Alexey Akimov & Simon Stevenson & James Young, 2015. "Synchronisation and commonalities in metropolitan housing market cycles," Urban Studies, Urban Studies Journal Limited, vol. 52(9), pages 1665-1682, July.
    5. Zheng, Xian & Chen, Xingtao & Yuan, Ziqing, 2021. "Exploring the spatial spillover effect of home purchase restrictions on residential land prices based on the difference-in-differences approach: Evidence from 195 Chinese cities," Land Use Policy, Elsevier, vol. 102(C).
    6. Hsiao-Jung Teng & Chin-Oh Chang & Ming-Chi Chen, 2017. "Housing bubble contagion from city centre to suburbs," Urban Studies, Urban Studies Journal Limited, vol. 54(6), pages 1463-1481, May.
    7. Ge, Jiaqi, 2013. "Endogenous Rise and Collapse of Housing Prices," Staff General Research Papers Archive 36279, Iowa State University, Department of Economics.
    8. Yang Hu & Les Oxley, 2018. "Bubbles in US regional house prices: evidence from house price–income ratios at the State level," Applied Economics, Taylor & Francis Journals, vol. 50(29), pages 3196-3229, June.
    9. Jiaqi Ge, 2013. "Endogenous Formation and Collapse Of Housing Bubbles," Staff General Research Papers Archive 36277, Iowa State University, Department of Economics.
    10. Saeed Rasekhi & Zahra Mila Elmi & Milad Shahrazi, 2016. "Price Bubbles Spillover among Asset Markets: Evidence from Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(4), pages 501-523, Autumn.
    11. MeiChi Huang & Tzu-Chien Wang, 2015. "Housing-bubble vulnerability and diversification opportunities during housing boom–bust cycles: evidence from decomposition of asset price returns," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(2), pages 605-637, March.
    12. MeiChi Huang, 2014. "Monetary policy implications of housing shift-contagion across regional markets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(4), pages 589-608, October.

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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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