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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
House prices

Interesting things to note from last lecture:

  • Big swings in many countries
  • Peaks near business cycles
  • Timing of peaks across countries
house prices2
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
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
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
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
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.
slide7
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
Demand side factors
  • Disposable income
  • Demographics
    • Bugle in the peak house-buying aged population
  • Migration
  • Interest rates
supply side factors
Supply side factors
  • House completions
  • Land costs
  • Building costs
findings
Findings
  • No bubble
  • House prices explained by fundamentals
  • Rising land prices key fundamental

BUT:

  • Is there a bubble in land prices?