The Inter-Tier Spread of Housing Bubbles: Are Luxury Markets to Blame?

Abstract

Understanding the spread of asset bubbles is pivotal to the effectiveness of risk management. This study thus estimates housing bubbles and investigates how and to what extent price bubbles spread between the tiers of luxury and mass housing in Hong Kong. The results show that price bubbles spread between housing tiers, the spreading of bubbles is not uni-directional from luxury to mass tiers, and more than 60% of bubbles come from inter-tier spreading. Moreover, bubble shocks from the luxury tier have stronger spreading influences on the movements of bubbles in the mass housing tier than the other way around during the period before the end of the global financial crisis (GFC), whereas the opposite is true for the period after GFC. The findings are important for policy makers attempting to tackle soaring housing bubbles, financial institutions seeking to managing lending risk, and housing investors wanting to time the submarkets.

An empirical investigation into regional housing market synchronisation in Poland

“…The important influencing factors can also be found in analysing the migration trends and their links with the business cycles and overall financial stability (Vučković & Škuflić, 2021), especially in the case of intellectual migration (Oliinyk et al, 2022). Furthermore, there is a substantial body of empirical evidence that indicates that housing markets dynamics are interconnected with mortgage markets, financial stability, and the broader economy and strongly influenced by investor expectations (Adarov, 2022;Cesa-Bianchi, 2013;Duca, 2020;Duca et al, 2021;Hoesli, 2020;Mizero et al, 2018;Do & Park, 2018;Jorda et al, 2019;Brychko et al, 2021;Brychko et al, 2021;Kuo et al, 2021;Tomal, 2021;Trojanek et al, 2022). The mortgage markets, in their turn, are significantly affected by borrowers' financial ability (Kovacs & Pasztor, 2021).…”