Identifying the Real Estate Bubble: a Case Study of the Largest Cities in Russia

Unpredictably high rates of price growth in the primary residential real estate market have sparked debate about the possiblity of a price bubble formation. Confirmation of the housing bubble from a regulatory perspective signals a growing risk of a possible correction in the overvalued market, which will lead to spillover effects throughout the financial system due to the high capital intensity of the industry. The purpose of this study is to identify the real estate bubble in Russia's largest cities and answer the upcoming question of what changes in market structure or regulatory policy most triggered the imbalances. To understand the specifics of the bubble detection process, an extensive analysis of the literature is presented, which suggests using a range of econometric approaches in combination. A data set of 10 variables is collected for 12 subjects from 1Q2016 to 4Q2023, as well as a set of 2 variables for 12 subjects from 1Q2000 to 4Q2023. The stationarity test approach is then used to identify the time periods of explosive behavior of price indicators, after which the cointegration test approach is applied to confirm or refute the results of the previous method. The novelty of this article lies in revealing the reasons for the alarming price dynamics. In addition, external factors will be included for the purposes of the cointegration test, and if their significance is proven, extensive regulatory recommendations can be discussed.