Determinants of Housing Price: The Case of Bucaramanga (Colombia)
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Abstract
The housing prices in the city of Bucaramanga (Colombia) experienced a constant increase from 2006, raising fears that a housing bubble could happen in the growing city. Stiglitz (1990) explains a bubble as a constant increase in the price of a financial asset that is not justified by economic fundamentals. The purpose of this study was to find out if the increasing housing price in Bucaramanga from 2007-2014 could be attributed to a housing bubble, or could be explained as the result of other factors. Quarterly data for this period was used to analyze the response of house prices to changes in national and local economic fundamentals. House prices data for the city allowed a multiple regression analysis of several economic factors (area licensed for construction, construction cost, Gross Domestic Product (GDP), mortgage interest, unemployment, inflation) to establish the main determinants of its behavior. The study found that house prices for Bucaramanga varied significantly in their response to Gross Domestic Product (GDP) trend. Hence, GDP was found to be the only significant predictor of housing prices among the independent variables selected for the study.
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