Prosperity or Real Estate Bubble? Exuberance Probability Index of Real Housing Prices in Chile

In this paper, we approached the concept of real estate bubble, analyzing risk its bursting could generate for Chilean financial market. Specifically, analyzed relationship between housing prices, economic activity index, and mortgage interest rates denominated in inflation-linked units from 1994 to 2020. The analysis was based on a second order Markov switching model with predetermined variables mentioned later, whose parameters were obtained through expectation–maximization algorithm. Then, built probability index as early warning indicator potential imbalances price that put market stability at risk. is important evaluate policy calibrations time. A main finding had non-linear rate. Therefore, evolution has been consistent fundamental macroeconomic variables, even under high growth regime, increases above 12% per year. About 92% variability derived changing macrofinancial conditions, suggesting low margin speculative behavior.