Speculative Bubble Spillovers across Regional Housing Markets

ABSTRACT. In this paper we determine whether speculative bubbles in one region in the United States can lead bubbles to form in others. We first apply a regime-switching model to determine whether specu-lative bubbles existed in the U.S. regional residential real estate markets. Our findings suggest that the housing markets in five of the nine census divisions investigated were characterized by speculative bub-bles. We then examine the extent to which bubbles spill over between neighboring and more distant re-gions, finding that the transmission of speculative bubbles and nonfundamentals between regions is multidirectional and does not depend on contiguity or distance. (JEL C51, R21) I