Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
This article studies how much variation in <italic>house prices</italic> results from <italic>nonfundamental factors</italic>. We propose a relative valuation approach to quantifying a <italic>bubble</italic> in housing by incorporating the housing User Cost into a state space model. We find that UK <italic>house prices</italic> were undervalued from January 1995 to May 2001 and subsequently moved into a <italic>bubble</italic> over the period to October 2012. Our results support the bounded rationality hypothesis in the long run. However, we also find that the irrational and the rational expectation hypotheses can coexist in the short run when explosive <italic>bubbles</italic> are driven by <italic>price dynamics</italic>.