Is there a real-estate bubble in the US?

doi:10.1016/j.physa.2005.06.098

Physica A: Statistical Mechanics and its Applications

Volume 361, Issue 1, 15 February 2006, Pages 297-308

https://doi.org/10.1016/j.physa.2005.06.098 Get rights and content

Abstract

Using a methodology developed in previous papers, we analyze the quarterly average sale prices of new houses sold in the USA as a whole, in the Northeast, Midwest, South, and West of the USA, in each of the 50 states and the District of Columbia of the USA, to determine whether they have grown at a faster-than-exponential rate which we take as the diagnostic of a bubble. We find that 22 states (mostly Northeast and West) exhibit clear-cut signatures of a fast-growing bubble. From the analysis of the S&P 500 Home Index, we conclude that the turning point of the bubble will probably occur around mid-2006.

Section snippets

Is there a real-estate bubble in the US? Lessons from the past UK bubble

In the aftermath of the burst of the “new economy” bubble in 2000, the Federal Reserve aggressively reduced short-term rate yields in less than two years from $6^{1 / 2} %$ to 1% in June 2003 in an attempt to coax forth a stronger recovery of the US economy. In March 2003, we released a paper published a few months later [1] addressing the growing apprehension at the time (see for instance [2]) that this loosening of the US monetary policy could lead to a new bubble in real estate, as strong housing

Evidence of a US real-estate bubble by a faster-than-exponential growth

Fig. 2 shows the quarterly average sale prices of new houses sold in all the states of the USA as well as in the four main regions, Northeast, Midwest, South and West, from 1993 to the first quarter of 2005 as a function of time t. The smooth curve represents the power-law fit (1) to the data. Except for the midwest and south regions, one can observe a strong upward curvature in these linear-logarithmic plots, which characterize a faster-than-exponential price growth (recall that an exponential

Extension to the LPPL model and discussion

The previous tests performed in Refs. [3], [4], [5], [6], [7], [8] (and references therein) show that the problems with the very large sensitivity of $t_{c}$ in the simple power-law model with respect to the last few data points are alleviated by using the more sophisticated LPPL models (2) and (3). Here, we use both LPPL models (2) and (3) as well as the so-called 2nd-order Landau LPPL introduced in Ref. [24].⁶

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Is there a real-estate bubble in the US?

Abstract

Section snippets

Is there a real-estate bubble in the US? Lessons from the past UK bubble

Evidence of a US real-estate bubble by a faster-than-exponential growth

Extension to the LPPL model and discussion

Physica A

Physica A

Physica A

Physica A

Physica A

Stock market crashes, precursors and replicas

J. Phys. I France

Predicting financial crashes using discrete scale invariance

J. Risk

Crashes as critical points

Int. J. Theoret. Appl. Finance

Significance of log-periodic precursors to financial crashes

Quant. Finance

Why Stock Markets Crash, Critical Events in Complex Financial Systems

Significance of log-periodic signatures in cumulative noise

Quant. Finance