Real estate boom in Chile and fundamentals on house prices

Abstract

This article studies the fundamentals of housing prices based on the Real Index of Housing Prices (IRPV), given that in recent times in Chile there has been a sustained increase in price levels and seeks to find evidence on the existence of a possible speculative bubble in the real estate market. Following the methodology of various Chilean and international authors, the Engle & Granger Co-integration methodology was applied. Furthermore, the results of the previous methodology were compared using the Johansen Co-integration test. Then a method to find structural breaks is applied. As a result, evidence is found to not reject the existence of a bubble in the real estate market. It is found that only interest rates co-integrate in the long term with the evolution of house prices, while the other fundamentals present a spurious relationship.

Keywords

• real estate bubbles
• real estate prices
• speculation
• co-integration