The Journal of Real Estate Finance and Economics

, Volume 53, Issue 4, pp 419–449 | Cite as

Episodes of Exuberance in Housing Markets: In Search of the Smoking Gun

  • Efthymios Pavlidis
  • Alisa Yusupova
  • Ivan Paya
  • David Peel
  • Enrique Martínez-GarcíaEmail author
  • Adrienne Mack
  • Valerie Grossman


In this paper, we examine changes in the time series properties of three widely used housing market indicators (real house prices, price-to-income ratios, and price-to-rent ratios) for a large set of countries to detect episodes of explosive dynamics. Dating such episodes of exuberance in housing markets provides a timeline as well as empirical content to the narrative connecting housing exuberance to the global 2008 −09 recession. For our empirical analysis, we employ two recursive univariate unit root tests recently developed by Phillips and Yu (International Economic Review 52(1):201–226, 2011) and Phillips et al. (2015). We also propose a novel extension of the test developed by Phillips et al. (2015) to a panel setting in order to exploit the large cross-sectional dimension of our international dataset. Statistically significant periods of exuberance are found in most countries. Moreover, we find strong evidence of the emergence of an unprecedented period of exuberance in the early 2000s that eventually collapsed around 2006 −07, preceding the 2008 −09 global recession. We examine whether macro and financial variables help to predict (in-sample) episodes of exuberance in housing markets. Long-term interest rates, credit growth and global economic conditions are found to be among the best predictors. We conclude that global factors (partly) explain the synchronization of exuberance episodes that we detect in the data in the 2000s.


House prices Mildly explosive time series Sup ADF test Generalized sup ADF test Panel GSADF Probit model 

JEL Classification:

C22 G12 R30 R31 



We would like to thank María Teresa Martínez García and Itamar Caspi for providing helpful assistance and suggestions. We acknowledge the support of the Federal Reserve Bank of Dallas. All remaining errors are ours alone. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System.


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Efthymios Pavlidis
    • 1
  • Alisa Yusupova
    • 1
  • Ivan Paya
    • 1
  • David Peel
    • 1
  • Enrique Martínez-García
    • 2
    Email author
  • Adrienne Mack
    • 3
  • Valerie Grossman
    • 2
  1. 1.Lancaster University Management SchoolLancasterUK
  2. 2.Federal Reserve Bank of DallasDallasUSA
  3. 3.Mutual of OmahaOmahaUSA

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