Testing for a Housing Bubble at the National and Regional Level: The Case of Israel


Between 2008 and 2013, home prices in Israel appreciated by roughly 50 % in real terms, with increases in nearly 60 % in some regions. This paper examines whether this phenomenon reflects the presence of a national or regional housing bubble by applying econometric tests for explosive behavior to quality-adjusted national- and regional-level data on the home price to rent ratio, while controlling for various fundamental factors, including interest rates, income and the leverage ratio. Overall, study results indicate that the national- and regional-level data are inconsistent with a housing bubble scenario. Most of the results are robust to a variety of tests and alternate specifications. The framework I provide to study the Israeli case may be applied to study other housing markets facing similar developments..

In Empirical Economics 51(2), 483-516