The (Un)Predictability of Housing Bubbles

This paper employs econometric tests of rational bubbles to identify housing bubbles, especially during the COVID-19 pandemic. It then examines monetary policy impacts on housing bubbles through a hierarchical Bayesian framework. The S&P/Case-Shiller U.S. national home price adjusted by rental is considered for the empirical analysis. The findings suggest that test statistics exceed critical values after the bubble starts and fall below when it bursts. The results also indicate (1) the current housing bubble has not collapsed yet, (2) it collapses when long-term bond yields exceed short-term yields, (3) and the monetary policy has minimal effects on the bubble collapse