House prices
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House prices Interesting things to note from last lecture: Big swings in many countries Peaks near business cycles Timing of peaks across countries House prices Measures of valuation House Prices to Disposable Income House Prices to Rents (Price/Earnings)

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House prices

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House prices

Interesting things to note from last lecture:

  • Big swings in many countries

  • Peaks near business cycles

  • Timing of peaks across countries


House prices

Measures of valuation

  • House Prices to Disposable Income

  • House Prices to Rents (Price/Earnings)

  • By either measure, house prices are high in a number of countries


Macro Variables around House Price Peaks

  • Look at event graphs: centred on house price peaks

    Results (Charts 3.1-3.11)

  • Sharp movements coincident with peaks

  • Nominal Policy Rates, CPI peak just after

  • Data highly cyclical


Interpretation

Both House prices and other macro variables move with business cycle. Could be that:

  • House price swings cause business cycles

  • Business cycle shocks move house prices

  • Bit of both


Other factors

What could move house prices outside of the business cycle?

  • Demographics (Chart 3.13)

  • Financial Deregulation, Innovation (Tables 3.1 and 3.2)

  • Structural changes

  • Speculation, etc.


Will Irish House Prices Fall?

  • Roche, M. (2003) “Will there be a crash in Irish house prices?” ESRI QEC, Winter

    • The technical analysis in Section 3 can be skipped.


  • Are house prices in Ireland close to their “fundamental” values or is there a “bubble”?

  • Fundamentals  supply and demand

  • Bubble  price rises driven by expectations of future price rises


Demand side factors

  • Disposable income

  • Demographics

    • Bugle in the peak house-buying aged population

  • Migration

  • Interest rates


Supply side factors

  • House completions

  • Land costs

  • Building costs


Findings

  • No bubble

  • House prices explained by fundamentals

  • Rising land prices key fundamental

    BUT:

  • Is there a bubble in land prices?


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