Assistant Program Director Gregorio A. Mabbagu
Abstract
Factors that Drive Residential Real Estate Bubbles: Prospect for Bubbles within the National Capital Region (NCR)
(Part 1 of 2)
With the alarming concern on housing bubbles worldwide after the most recent bubble crash in United States, the importance of what macroeconomic factors drive bubbles has been a prominent issue aside from the struggle to detect its formation. The study examines significant factors related to the formation of residential housing bubble within the NCR and also shows a result of one of the most recent bubble detector models formulated by Taipalus (2012). With the framework of the Austrian Business Cycle (ABC) theory of asset bubbles, multi-approach framework recommended by Kubicova and Komarek (2011), and overlapping generation model with bubbles, the study utilized two main methodologies which are econometric regression (Multivariate OLS) and Taipalus ADF Test for bubbles. The scope of the study focuses within the NCR’s Center for Business District (CBD) specifically Makati, Ortigas, Rockwell, and Bonifacio Global City. This is primarily due to the strong and proven assumption that housing bubbles are mainly rooted from price speculation to which CBD’s condominiums and establishments are predisposed to. The econometric regression results show that Foreign Exchange rate, 91-Day Treasury Bill rate, NCR Unemployment rate, GDP per Capita, M2 growth rate, Residential Real Estate Loam growth rate, and Residential Real Estate Stock Price Index are significantly related to housing price bubble movement. Specifically, Foreign Exchange rate as proxy for capital inflow, 91-Day Treasury Bill rate as proxy for interest rate, and NCR unemployment rate posted negative relationship with the bubble growth. On the other hand, the other four variables posted positive relationship. The R2 of the econometric regression resulted in a relatively low figure of 46.23% which indicates that the unexplained parameter, that reflects the sentimental factor (speculation), is still dominant. Based on the Taipalus model, it reveals that from 2001 to 2012 there were periods of bubbles particularly from Q3 2005 to Q2 2006, Q2 2008, Q4 2009 to Q4 of 2011, and Q2 of 2012, but these were seen insignificant based on magnitude except for Q2 2012.
Key words: housing price bubbles, business cycle, real estate, asset pricing
Profile
Gregorio A. Mabbagu is a graduate of Master of Science in Industrial Economics (MSIE) in UA&P, batch of 2013. He currently works in UA&P under the Entrepreneurial Management Program (EMP) in School of Management, teaching Basic Economics, Microeconomics, and Macroeconomics subjects. As an undergraduate, he had a 1-year On-The-Job training (OJT) in First Metro Investment Corporation (FMIC) as a research assistant and writer on Macroeconomics indicators of the Philippines published in the monthly "Market Call" magazine. He experienced some consultancy work, research assistant works, currency and stock market trading, and co-managing small businesses among others as sidelines.
Presentation
Thank you for helping us by citing the seminar when using these documents (17th Sustainable Shared Growth Seminar of the Sekiguchi Global Research Association, February 11, 2014, College of Engineering, University of the Philippines)