Methodology

How can we distinguish good housing booms from bad one? We develop a high-frequency classification that separates demand-dominant from flow-supply-dominant movements and, within demand episodes, housing-service-dominant from valuation-dominant booms.

We classify monthly house price growth across 176 urban districts into supply- and demand-dominant episodes based on the co-movement of transaction volume and house prices. We then further decompose demand-dominant episodes by examining changes in the sales-to-Jeonse price ratio: demand-dominant episode is labeled as housing-service demand dominant if the sales-to-Jeonse ratio decreases, and as valuation demand dominant if the ratio increases. The direction of movement is determined by the sign of residuals from a reduced-form trivariate VAR estimated for each district. 

For a detailed description of our methodology, please refer here.