Testing bubbles in housing markets: An analysis from the panel-cointegrated model for the Brazilian states

Abstract

This research is aimed at checking for evidence of rational bubbles in household prices of Brazilian states (São Paulo, Rio de Janeiro, Pernambuco, Ceará, Bahia and Minas Gerais), from 2008 to 2015. This analysis will be carried out by using the cointegration method of panel data proposed by Pedroni (2004). The results showed that there is no empirical support for a cointegration relationship between the actual prices of housing and rent, giving evidence of price bubbles housing at the local level. This result is consistent with those found by Mendonça & Sachsida (2012) and Besarria (2014), and these authors analyzed the aggregate economy. Finally, evidence based on Granger causality tests in panel data suggest that changes in house prices are useful in predicting changes in the value of rents and the inverse relationship has not been verified.