House price bubbles under the COVID-19 pandemic

Jacob H. Hansen; Stig V. Møller; Thomas Q. Pedersen; Christian M. Schütte

doi:10.1016/j.jempfin.2023.101462

House price bubbles under the COVID-19 pandemic

Jacob H. Hansen, Stig V. Møller, Thomas Q. Pedersen^*, Christian M. Schütte

^*Corresponding author for this work

Department of Economics and Business Economics

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review

Abstract

We analyze bubble formations in house prices under the COVID-19 pandemic in 382 metropolitan areas in the U.S. with a special attention to the role of population density. We use a robust sieve-bootstrap version of the right-tailed unit root test procedure to identify periods of explosiveness in price–rent ratios across metro areas when controlling for fundamentals such as mortgage debt financing costs and the wealth of households. The bubble tests reveal evidence of explosive house prices during the COVID-19 pandemic but with important cross-area differences. In contrast to earlier bubble episodes, we find that the frequency and size of bubble formations under the pandemic have been stronger in low-density metro areas compared to high-density metro areas.

Original language	English
Article number	101462
Journal	Journal of Empirical Finance
Volume	75
ISSN	0927-5398
DOIs	https://doi.org/10.1016/j.jempfin.2023.101462
Publication status	Published - Jan 2024

Keywords

Explosive house prices
Metropolitan statistical area
Population density
Rational bubbles
Right-tailed unit root tests

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10.1016/j.jempfin.2023.101462Licence: CC BY

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title = "House price bubbles under the COVID-19 pandemic",

abstract = "We analyze bubble formations in house prices under the COVID-19 pandemic in 382 metropolitan areas in the U.S. with a special attention to the role of population density. We use a robust sieve-bootstrap version of the right-tailed unit root test procedure to identify periods of explosiveness in price–rent ratios across metro areas when controlling for fundamentals such as mortgage debt financing costs and the wealth of households. The bubble tests reveal evidence of explosive house prices during the COVID-19 pandemic but with important cross-area differences. In contrast to earlier bubble episodes, we find that the frequency and size of bubble formations under the pandemic have been stronger in low-density metro areas compared to high-density metro areas.",

keywords = "Explosive house prices, Metropolitan statistical area, Population density, Rational bubbles, Right-tailed unit root tests",

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AU - Hansen, Jacob H.

AU - Møller, Stig V.

AU - Pedersen, Thomas Q.

AU - Schütte, Christian M.

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N2 - We analyze bubble formations in house prices under the COVID-19 pandemic in 382 metropolitan areas in the U.S. with a special attention to the role of population density. We use a robust sieve-bootstrap version of the right-tailed unit root test procedure to identify periods of explosiveness in price–rent ratios across metro areas when controlling for fundamentals such as mortgage debt financing costs and the wealth of households. The bubble tests reveal evidence of explosive house prices during the COVID-19 pandemic but with important cross-area differences. In contrast to earlier bubble episodes, we find that the frequency and size of bubble formations under the pandemic have been stronger in low-density metro areas compared to high-density metro areas.

AB - We analyze bubble formations in house prices under the COVID-19 pandemic in 382 metropolitan areas in the U.S. with a special attention to the role of population density. We use a robust sieve-bootstrap version of the right-tailed unit root test procedure to identify periods of explosiveness in price–rent ratios across metro areas when controlling for fundamentals such as mortgage debt financing costs and the wealth of households. The bubble tests reveal evidence of explosive house prices during the COVID-19 pandemic but with important cross-area differences. In contrast to earlier bubble episodes, we find that the frequency and size of bubble formations under the pandemic have been stronger in low-density metro areas compared to high-density metro areas.

KW - Explosive house prices

KW - Metropolitan statistical area

KW - Population density

KW - Rational bubbles

KW - Right-tailed unit root tests

U2 - 10.1016/j.jempfin.2023.101462

DO - 10.1016/j.jempfin.2023.101462

M3 - Journal article

AN - SCOPUS:85182433122

SN - 0927-5398

VL - 75

JO - Journal of Empirical Finance

JF - Journal of Empirical Finance

M1 - 101462

ER -

House price bubbles under the COVID-19 pandemic

Abstract

Keywords

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