WSEAS Transactions on Business and Economics
Print ISSN: 1109-9526, E-ISSN: 2224-2899
Volume 13, 2016
Brazilian Residential Real Estate Bubble
Authors: , , ,
Abstract: The rapid pace of credit expansion in Brazil, combined with the strong growth in real estate sales prices, has prompted considerable speculation on the presence of an asset bubble in the residential real estate market. There are signs that the residential real estate is overheated in Brazil and this can be observed by the number of new launches and the increase of residential real estate sales prices on recent years. Due to the growing importance of the real estate market in Brazil and the virtual nonexistence of research related to the empirical identification of bubbles in the Brazilian residential real estate market this research assessed whether the upward movement is justified by fundamental factors in order to assess the existence of a housing bubble in the period of 2001-2013. Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit-root tests, as well as Johansen cointegration and Granger causality tests were conducted to detect changes in time series behavioral patterns. The housing price index was based on monthly Residential Real Estate Collateral Value Index (IVGR). Six variables were used as proxies for residential property fundamental value based on residential property rent-price and cost-price indexes. The results showed that the development of residential real estate prices can be well explained by fundamental variables. Furthermore, cointegration and causality tests reveal the existence of a long relationship between real estate prices and fundamental variables, suggesting the absence of a bubble. These results, however, do not indicate that prices of residential real estate cannot fall. Instead, it is likely that changes in the macroeconomic scenario could put downward pressure on house prices.
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Pages: 74-85
WSEAS Transactions on Business and Economics, ISSN / E-ISSN: 1109-9526 / 2224-2899, Volume 13, 2016, Art. #8