Is there a real-estate bubble in the US?

Abstract

We analyze the quarterly average sale prices of new houses sold in the USA as a whole, in the northeast, midwest, south, and west of the USA, in each of the 50 states and the District of Columbia of the USA, to determine whether they have grown faster-than-exponential which we take as the diagnostic of a bubble. We find that 22 states (mostly Northeast and West) exhibit clear-cut signatures of a fast growing bubble. From the analysis of the S&P 500 Home Index, we conclude that the turning point of the bubble will probably occur around mid-2006.

Symmetric thermal optimal path and time-dependent lead-lag relationship: novel statistical tests and application to UK and US real-estate and monetary policies

“…First, the S&P Case-Shiller HPI has a shorter span from 2000 to 2011. Second, the S&P Case-Shiller HPI climaxed in late 2006 as successfully predicted in Zhou and Sornette (2006a), while the FHFA HPI peaked in 2007. Third, their return series have different patterns in several periods.…”

“…The housing market, in the meantime, entered a phase of faster-than-exponential growth, showing solid signs of a bubble (Zhou and Sornette 2006a). The TOPS paths during this period exhibit significant lead-lag signals, which verged quickly toward zero, especially for the dollar LIBOR and the Treasury Bond Yield, whose TOPS paths become positive in the year around 2005 and 2006.…”

Financial Bubbles: Mechanisms and Diagnostics

“…In fact, using these concepts and the technical implementation described below, in June 2005 we published in the international scientific digital archive (http://arxiv.org/abs/physics/0506027) a warning that the US real-estate market would experience radical change by mid-2006. The article was published in a scientific journal afterwards in 2006 [14]. This is a clear illustration of how the market functions like a dynamic system that experiences phases of unsustainable growth followed by corrections, and is in no way a system in equilibrium in which the fundamental price is discovered at the intersection of supply and demand.…”

Bubbles, Blind-Spots and Brexit

“…However, this is flatly contradicted by empirical evidence of bubbles across a diverse range of asset classes (see, e.g., Sornette 2003). Further, out-of-sample prediction of these methods is impressive (Zhou and Sornette 2006) and may out-perform those using standard methods (Sornette 2003). It is this potential for out-of-sample forecasting that is of particular interest here.…”