analysis of real estate bubbles in eight residential markets · swiss real estate research congress...
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Testing for econometric regime shifts and concordance indicators using fundamental based methods
Robert Kuert
Swiss Real Estate Research Congress 29.03.2019
29.03.2019 1
Analysis of Real Estate Bubbles
in Eight Residential Markets
Robert Kuert
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Research focus
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Research focusUS housing prices, real
Source: Bank of International Settlements (2019)
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Research questions
How can we identify a housing price bubble with fundamentals?
Which (out of eight) countries show such regimes?
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Relevance
Systemic Risk
Housing stores
Private wealth
Mortgage debt
Price corrections have impacts on…
Defaults
Creditor liquidity
The wider economy (spill-overs)
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Relevance
in Switzerland
SNB Financial Stability Report (2018)
[…] has resulted in imbalances on the mortgage and residential real estate markets.
Mortgage debt at over 1’000 bio. CHF
Vacancy rates in residential investment properties at high levels
Swiss Bankers Association (March 2019)
[…] considering [more] amandments to self-regulation
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Review of various econometric papers on
housing prices in different countries
Works of Anundsen (2013)
found bubble regime for the US
Not yet used for other countries
Error Correction Models & Cointegration
Assuming that prices adjust to a long term
equilibrium with fundamentals
29.03.2019Robert Kuert 7
Previous work focused on Error Correction Models
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Previous work focused on Error Correction Models
Prices
User cost of housing
Levels
Cointegration
Prices and
User cost
are cointegrated
Differences
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Bubble indication
Specifications
Approaches
29.03.2019Robert Kuert 9
Methodology
Price to Rent Price to Income
1. ECM Single Equation
2. Cointegration Vector Error Correction
Data Eight economies
Concordance of indicators
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Concordant bubble regime
between 2002 and 2009
29.03.2019Robert Kuert 10
Results for the US
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Signals in Canada and New Zealand
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Japan - a difficult case - and Switzerland
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Thesis methodology is more conservative than literature
Literature Thesis
Canada x
France x
Germany
Japan x
Netherlands x
New Zealand x x
Switzerland x
United Kingdom x
(Independent of period)
Indications of a bubble regime
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Don’t buy a home in Canada or
New Zealand
Switzerland’s owner occupied sector
seems (or seemed) safe
Data has higher impact than model
specifications
You can not compensate data deficiencies
with better model specifications.
29.03.2019Robert Kuert 14
Takeaway
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Prof. Dr. Maximilian von Ehrlich
University of Bern
Research fellow at the Center for Regional
Economic Development (CRED)
29.03.2019Robert Kuert 15
Review
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Panel discussion
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Author
Robert Kuert
Risk Control, Analytics Immobilien
Zürcher Kantonalbank
Supervision
Prof. Dr. Didier Sornette, Dr. Dorsa Sanadgol and Dr. Diego Ardila
Chair of Entrepreneurial Risks
D-MTEC, ETH Zürich
Scheuchzerstrasse 7, Zürich
© ETH Zurich, September 2016
1.12.2014First name Surname (edit via “Insert” > “Header & Footer”) 17
Contact information and credits
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Appendix
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A0 Data Description and temporal properties
No seasonal adjustment
User cost is constructed out of
the following rates collected per
country and if necessary,
aggregated: depreciation,
property tax, income tax, mort-
gage interest, and inflation.
Deflators are the consumer price
index (CPI), once without housing
components (CPI1), for deflating
PH, R and Y, once measured for
all items in order to account for
the inflation in the user cost
(CPI2).
Additionally, the value of the
housing stock is deflated by an
appropriate metric, depending on
the measure used for the stock
(PJ). st (UC).
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A1 Single Equation Methodology Price-to-Rent
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A2 VECM & CVAR Methodology Price-to-Rent
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A3 Log Periodic Power Law Fit (independent of fundamentals)
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A4 Concordance Indicator
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A5 Results Cross-Country Concordance
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A6 Results Cross-Model Concordance (only Canada)