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Title: Econometric methods for detecting imbalances in house prices Authors:  Andre Anundsen - Norges Bank (Norway) [presenting]
Abstract: The question whether house price bubbles can be detected in real time is addressed. The answer seems to be yes. Four different econometric methods are considered to construct indicators of housing market imbalances for the US, Finland and Norway. We investigate if the house price development in these countries in the 2000's can be explained by underlying economic fundamentals, or whether it is best characterized by bubble-dynamics. For the US, all measures suggest a bubble in the early to mid 2000's, while only one measure indicates imbalances in the Finnish housing market. For the case of Norway, none of the measures provide evidence of systematic overheating. The global savings glut and the relaxation of credit standards have been put forth as alternative explanations of the US housing bubble. The results suggest that the bubble cannot be explained by capital inflows, but that it was caused by the increased exposure to the subprime mortgage market.