The rise in house prices in Dublin: bubble, fad or just fundamentals

The recent dramatic rise in house prices in Dublin has been regularly discu ssed in the media. An obvious question is whether the seemingly ever-increa sing house prices are driven by market fundamentals or by speculation? Whil e the observed increase in house prices is due to excess demand for housing , it is the nature of this excess demand that we investigate in this paper. We decompose house prices in Dublin into fundamental and non-fundamental c omponents using a variety of measures. A regime-switching model is estimate d and tested to explore whether speculative bubbles, fads or just fundament als drive house prices in Dublin. Our main findings suggest that there may be a speculative bubble in the Dublin house prices. (C) 2001 Elsevier Scien ce B.V. All rights reserved.