Estimating housing price bubbles for investment and owner-occupancy

ABSTRACT

This study probably marks the first attempt to differentiate between investment and owner-occupancy when measuring real estate price bubbles. The housing tenure and leverage status of each residential sale in the Auckland housing market are identified, and four groups of transactions are created: leveraged investment (LI), leveraged owner-occupancy (LO), unleveraged investment (UI) and unleveraged owner-occupancy (UO). This research applies a present value model to estimate housing price bubbles for the four groups. We discover that, in terms of the duration and size of bubbles, there are minor differences among the four groups. In addition, the overvaluation for all groups is mainly related to momentum behaviour.

KEYWORDS:

• Present value
• bubble
• fundamental
• housing price
• tenure

JEL CLASSIFICATION:

• R00
• R30

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ This output is lengthy. In this article, any results that are not shown by a table or a graph will be available upon request.

² We also performed t-tests to examine whether these indexes have different dynamics. The results demonstrate that all the p-values, except the value of the test between LI and UI, are significant at the 1% level.

³ This is measured by the vertical distance between a solid line and a dotted line in Figure 2.

⁴ Average per capita income, population and unemployment rate are sourced from Infometrics. Effective mortgage rate and the government bond yields are downloaded from Reserve Bank of New Zealand. The PPI index is from Statistics New Zealand. The PPI index and the consumer confidence index are nationwide data as the Auckland-specific data do not exist. These variables, if possible, have been deflected by CPI.