A weekend topic on two papers, the first by Graeme O’Meara at the Economic and Social Review. “Abstract: This study contributes to the ongoing debate over the causes of housing bubbles. The argument that excessively low interest rates were responsible for the rapid increase in house prices over the last decade has received considerable attention in the literature. However, few papers have attempted to quantify the extent of house price overvaluation in countries that have seen housing booms and busts, in addition to quantifying the looseness of monetary policy. For a sample of 10 OECD countries, we estimate fundamental house prices using demand and supply side characteristics of the housing market. This is supplemented with analysis of price to rent ratios and fundamental price to rent ratios.”
“Loose monetary policy is defined as the deviation of the short term interest rate from the rate which the Taylor rule would prescribe. The empirical results suggest that for some countries deviations from the Taylor rule played a role in the surge in house prices and that a monetary policy stance less discretionary and more closely aligned with a Taylor rule could curtail some of the imbalance in the housing market.”
The full PDF is available at the link.
The second is by Dee Woo, the chief economist of Beijing Zhonghua Yuan Financial Institute. Titled:
China’s Insane Housing Market Will Tumble And Crash In 2017
What’s behind the property fever in China?
The financial truth of the destocking of China’s property market.
Use quantitative analysis to predict when the bubbles of China’s housing market will burst.”