House prices and real estate bubbles in Brazil: an analysis through Johansen cointegration

Abstract

This article presents a long-term role model of a house price index through Johansen cointegration. Variables linked to the real estate market were used to verify the existence of a long-term relation with the house price index formulated by FipeZap, a very important Brazilian institution. The model was then used to evaluate the possible existence of real estate bubbles in residential properties in the markets of Sao Paulo and Rio de Janeiro, showing the absence of a representative bubble in Sao Paulo, but overvalued prices in Rio de Janeiro. Over the analysed period (2008-2013), prices have risen quite a lot in both markets, but show the latest trend of convergence towards the fundamentals.