The housing cycle as shaped by prices and transactions: a tentative application of the honeycomb approach for Italy (1927–2019)

Abstract

PurposeThe purpose of this paper is to provide a dating system for the Italian residential real estate market from 1927 to 2019 and investigate its interaction with credit and business cycles.Design/methodology/approachTo detect the local turning point of the Italian residential real estate market, the authors apply the honeycomb cycle developed by Janssen et al. (1994) based on the joint analysis of house prices and the number of transactions. To this end, the authors use a unique historical reconstruction of house price levels by Baffigi and Piselli (2019) in addition to data on transactions.FindingsThis study confirms the validity of the honeycomb model for the last four decades of the Italian housing market. In addition, the results show that the severe downsizing of the housing market is largely associated with business and credit contraction, certainly contributing to exacerbating the severity of the recession. Finally, preliminary evidence suggests that whenever a price bubble occurs, it is coincident with the start of phase 2 of the honeycomb cycle.Originality/valueTo the best of the authors’ knowledge, this is the first time that the honeycomb approach has been tested over such a long historical period and compared to the cyclic features of financial and real aggregates. In addition, even if the honeycomb cycle is not a model for detecting booms and busts in the housing market, the preliminary evidence might suggest a role for volume/transactions in detecting housing market bubbles.

A reconceptualisation of the housing cycle based on household upgrading desires

“…The evidence presented based on OECD data above shows at best the occurrence of cycles only in some countries over the period of study of more than twenty years. This data and the research of Marzano et al . (2023) suggest that housing cycles are long-term phenomena but with a blurred definition, subject to interpretation.…”

“…The evidence presented based on OECD data above shows at best the occurrence of cycles only in some countries over the period of study of more than twenty years. This data and the research of Marzano et al (2023) suggest that housing cycles are long-term phenomena but with a blurred definition, subject to interpretation. To emphasise this point Harrison (2005) using a "chartist" approach, namely simply looking at price patterns, identified UK housing cycles of 18 years in length.…”

“…The paper also concludes that the determinants of housing market volume are more important than time lags. Marzano et al (2023) apply the "honeycomb" model to explain patterns of house prices in Italy. The statistical analysis demonstrates that the framework is subject to considerable interpretation and judgement but there are clear links with the economic cycle.…”

Government-Made House Price Bubbles? Austerity, Homeownership, Rental, and Credit Liberalization Policies and the “Irrational Exuberance” on Housing Markets

“…The largest increase in Italian house prices to date began in the 1970s and ended in the 2010s (Marzano et al, 2023), with particular boom periods between 1974and 1982, between 1987, and between 1999, as well as bust periods between 1982and 1986and between 1993(Agnello and Schuknecht, 2011. During this cycle, house prices tripled, which is also reflected in the ratio of the country's wealth to GDP.…”

“…The decline in house prices is linked in time to a decline in land prices (Cannari et al, 2016). Between 1950 and the 1970s, real prices saw a slow, but steady increase until they started to skyrocket in 1974 (and collapsed again in 1975), as households fled into real estate given inflation uncertainty and new supply declined (Marzano et al, 2023).…”