After a prolonged period characterized by rapid real appreciation in house prices, there is now broad recognition of the severe correction in housing markets that followed as one of the causes of the 2008-09 global recession. We investigate the time series characteristics of three relevant price indicators of the housing market-real house prices, price-to-income, and price-to-rent ratios-for the U.S. and 21 other countries during the period 1975Q1-2013Q2 (see Mack and Martínez-García (2011)) for evidence of explosive behavior as a plausible explanation for the boom and bust. The empirical detection of explosive behavior in house prices provides a precise timeline as well as empirical content to the narrative connecting the evolution of housing markets to the global recession; our rich cross-country dataset o¤ers a novel international perspective. For testing and detection, we adopt a pair of novel techniques based on a right-tail variation of the standard Augmented Dickey-Fuller (ADF ) test-the supremum ADF (SADF ) ) and the generalized SADF (GSADF ) (Phillips et al. (2012) and Phillips et al. (2013))-where the alternative hypothesis is of a mildly explosive process (even periodically collapsing with the GSADF test) behavior within sample. Statistically signi…cant periods of exuberance are found in most countries, with our empirical estimates suggesting an unprecendented synchronization across countries preceeding the global recession. The boom in housing begins during the late 90s in the U.S. spreading to most countries by the early 2000s, until it bursts for most during 2007 08 as the impact on economic activity was being felt. In this regard, our …ndings corroborate the narrative of the 2008-09 global recession. In this paper, we also discuss more generally the use of these procedures to monitor international housing markets and as a warning signal.JEL Classi…cation: C22, G12, R30, R31

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In this paper, we examine changes in the time series properties of standard housing market indicators (real house prices, price-to-income ratios, and price-to-rent ratios) for a large set of countries to detect episodes of explosive dynamics. Dating exuberance in housing markets provides a timeline as well as empirical content to the narrative connecting housing exuberance to the global 2008-09 recession. For our investigation, we employ two recursive univariate unit root tests developed by Phillips et al. (2011) and Phillips et al. (2015). We also propose a novel extension of the Phillips et al. (2015) test to a panel setting in order to exploit the large cross-sectional dimension of our international dataset. Statistically significant periods of exuberance are found in most countries. Moreover, there is also strong evidence of an unprecedented period of exuberance in the early 2000s that eventually collapsed around 2006-07, preceding the 2008-09 global recession. We find that long-term interest rates, credit growth and global economic conditions help to predict (in-sample) episodes of housing exuberance. We conclude that global macro and financial factors explain (partly) the synchronization of exuberance episodes that we detect in the data in the 2000s.

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