Forward pricing and the housing market: the pre-sales housing system in Taiwan

In countries that have experienced rapid economic development, the need to establish more efficient markets in which private property can be constructed has induced some innovative solutions. One such solution is the phenomenon of a pre-sales market of the kind that can be observed in Taiwan, Korea, and more recently in China. Developers sell their property before building is started in order to acquire financing for the development companies. This paper discusses the process and, by recognising the analogy between the pre-sales market and forwards markets, analyses the implications for developers

Intrinsic and rational speculative bubbles in the U.S. housing market 1960-2011

This paper examines the dynamics of the residential property market in the United States between 1960 and 2011. Given the cyclically and apparent overvaluation of the market over this period, we determine whether deviations of real estate prices from their fundamentals were caused by the existence of two genres of bubbles: intrinsic bubbles and rational speculative bubbles. We find evidence of an intrinsic bubble in the market pre-2000, implying that overreaction to changes in rents contributed to the overvaluation of real estate prices. However, using a regime-switching model, we find evidence of periodically collapsing rational bubbles in the post-2000 market