Revitalizing the issues, theories and concept of house price bubbles

• Main Authors: Zainuddin, Zaemah, Jali, Muhamad Nizam, Gan, Christopher, Ward, Bert
• Format: Conference or Workshop Item
• Language: English
• Published: 2012
• Subjects: HB Economic Theory
• Online Access: http://repo.uum.edu.my/12258/1/2309141011.pdf; http://repo.uum.edu.my/12258/; http://www.internationalconference.com.my
• Institution: Universiti Utara Malaysia

The sharp increase in house prices in several industrialized economies such as the US, UK and Spain (Glindro, et al., 2007) has attracted much attention due to the distorted impact created by the bursting of bubbles in the economy (Gyntleberg & Remolona 2006). Governments and organizations such as the Bank of International Settlement (BIS), International Monetary Fund (IMF) and Organization for Economic Cooperation (OECD) have raised concern about the issues of asset price instability (overshooting the fundamental variables) in the housing market (Gyntleberg & Remolona, 2006).Housing bubbles are believed to be caused by the expectation of an increase in future house prices. The three price expectation theories: rational expectation hypothesis (REH), adaptive expectation hypothesis (AEH) and exogenous expectation hypothesis (EEH) are used to rationalize the behavior of people in creating housing bubbles. It is also believe that people who rejected the existence of housing bubbles follow the supply side economics theory whereas others who believe on the existence of housing price bubbles follow the Keynesians and Shiller theory and Austrian school of thought. Therefore, it is important to understand the theoretical and conceptual framework underlying housing bubbles before suggesting any monetary or fiscal policies that might prevent future housing bubbles crises.