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Testing for a housing bubble at the national and regional level: the case of Israel

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  • Itamar Caspi

Abstract

Between 2008 and 2013, home prices in Israel appreciated by roughly 50 percent in real terms, with increases of nearly 60 percent in some regions. This paper examines whether this phenomenon reflects the presence of a national or regional housing bubble by applying econometric tests for explosive behavior to quality adjusted national and regional level data on the home price to rent ratio, while controlling for various fundamental factors, including interest rates, income and the leverage ratio. Overall, study results indicate that the recent housing price appreciations at the national and regional levels are consistent with the developments of the fundamentals ? supply and demand factors that are represented by rent payments and interest rates ? and not with a housing bubble scenario. Most of the results are robust to a variety of tests and alternate specifications. The framework I provide to study the Israeli case may be applied to study other housing markets facing similar developments.

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  • Itamar Caspi, 2015. "Testing for a housing bubble at the national and regional level: the case of Israel," Globalization Institute Working Papers 246, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddgw:246
    DOI: 10.24149/gwp246
    Note: Published as: Caspi, Itamar (2016), "Testing for a Housing Bubble at the National and Regional Level: The Case of Israel," Empirical Economics 51 (2): 483-516.
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    Cited by:

    1. Ye ChenCapital & Peter C B Phillips & Shuping Shi, 2023. "Common Bubble Detection in Large Dimensional Financial Systems," Journal of Financial Econometrics, Oxford University Press, vol. 21(4), pages 989-1063.
    2. Pedersen, Thomas Quistgaard & Schütte, Erik Christian Montes, 2020. "Testing for explosive bubbles in the presence of autocorrelated innovations," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 207-225.
    3. Caspi, Itamar & Graham, Meital, 2018. "Testing for bubbles in stock markets with irregular dividend distribution," Finance Research Letters, Elsevier, vol. 26(C), pages 89-94.
    4. Evren Ceritoglu & Seyit Mumin Cilasun & Ufuk Demiroglu & Aytul Ganioglu, 2019. "An analysis to detect exuberance and implosion in regional house prices in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 19(2), pages 67-82.
    5. Cássio da Nóbrega Besarria & Nelson Leitão Paes & Marcelo Eduardo Alves Silva, 2018. "Testing for bubbles in housing markets: some evidence for Brazil," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 11(5), pages 754-770, June.
    6. Kurmaş Akdoğan, 2019. "Size and sign asymmetries in house price adjustments," Applied Economics, Taylor & Francis Journals, vol. 51(48), pages 5268-5281, October.
    7. Iliyasu, Jamilu & Rafindadi Sanusi, Aliyu & Suleiman, Dahiru, 2019. "Testing For Multiple Bubble Episodes In Nigerian Stock Exchange Market," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 6(6), pages 13-26, June.
    8. Rafiq Ahmed & Syed Tehseen Jawaid & Samina Khalil, 2021. "Bubble Detection in Housing Market: Evidence From a Developing Country," SAGE Open, , vol. 11(2), pages 21582440211, April.
    9. Dana Orfaig, 2017. "A Structural VAR Model for Estimating the Link between Monetary Policy and Home Prices in Israel," Bank of Israel Working Papers 2017.09, Bank of Israel.

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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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