Journal of International Business and Economics

Assessing Housing Price Bubbles through an Affordability and Profitability Ratio Analysis.The case of Greek Residential Market
Stefanos V. Fotopoulos, PhD

Abstract
This research paper investigates housing price bubbles within the context of the residential real estate market in Greece, employing alternative analytical techniques and presenting novel econometric-based findings. The study concentrates on the temporal span from the first quarter of 1997 to the third quarter of 2022. Affordability and profitability indicators are employed to identify and evaluate episodes of either under- or overvaluation. Valuation is assessed by measuring the deviation of the price-to-rent ratio from its long-term average and trend, revealing an overvaluation of approximately 20% since the second quarter of 2019. Furthermore, the time-series properties of the dataset are subjected to rigorous econometric analysis, and specific housing-related hypotheses are empirically tested. Cointegration analysis yields varying implications for valuation depending on the chosen methodology and metric; nevertheless, the results collectively point to an overvaluation in terms of the price-to-income ratio. Moreover, among the four Right-Tailed Augmented Dickey-Fuller techniques employed, the Supremum Augmented Dickey-Fuller method identifies the presence of housing bubbles concerning the price-to-rent ratio. These bubbles are precisely dated using the Generalized Supremum Augmented Dickey-Fuller technique. The robustness of these findings is verified through the application of the Hodrick-Prescott Filter to real house prices. Remarkably, the most recent housing bubble episode, out of the four detected, persists until the final quarter of the sample period (2022Q3). This observation raises significant questions regarding its potential impact on the broader economy and necessitates a discussion on appropriate policy measures that should be considered.

Full Text: PDF     DOI: 10.15640/jibe.v11n1a1