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Bubble, bubble, toil, and trouble

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Author Info

  • Cabray L. Haines
  • Richard J. Rosen

Abstract

The rapid rise of real estate prices in recent years has led to fears of a housing price bubble. But, to determine whether there has been a bubble–and whether the bubble is bursting–one needs to know what home prices “should” be. The authors estimate a simple model of home prices and find that prices were, on average, above their predicted levels during 2000–06. However, this result does not hold true uniformly across the country. To the extent that prices were overheating, this was happening largely in markets that have traditionally exhibited volatile prices

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Bibliographic Info

Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

Volume (Year): (2007)
Issue (Month): Q I ()
Pages: 16-35

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Handle: RePEc:fip:fedhep:y:2007:i:qi:p:16-35:n:v.31no.1

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Related research

Keywords: Housing - Prices ; Mortgage loans;

References

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  1. Jonathan McCarthy & Richard W. Peach, 2004. "Are home prices the next "bubble"?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-17.
  2. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 763-789, May.
  3. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
  4. Joshua Gallin, 2003. "The long-run relationship between house prices and income: evidence from local housing markets," Finance and Economics Discussion Series 2003-17, Board of Governors of the Federal Reserve System (U.S.).
  5. Somerville, C Tsuriel, 1999. "Residential Construction Costs and the Supply of New Housing: Endogeneity and Bias in Construction Cost Indexes," The Journal of Real Estate Finance and Economics, Springer, vol. 18(1), pages 43-62, January.
  6. Richard J. Rosen, 2005. "Explaining recent changes in home prices," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Jul.
  7. Margaret Hwang Smith & Gary Smith, 2006. "Bubble, Bubble, Where's the Housing Bubble?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(1), pages 1-68.
  8. Raphael W. Bostic & Stanley D. Longhofer & Christian Redfearn, 2006. "Land Leverage: Decomposing Home Price Dynamics," Working Paper 8565, USC Lusk Center for Real Estate.
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Citations

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Cited by:
  1. Quan Gan & Robert J. Hill, 2008. "A New Perspective on the Relationship Between House Prices and Income," Discussion Papers 2008-13, School of Economics, The University of New South Wales.
  2. Kristopher S. Gerardi & Christopher L. Foote & Paul S. Willen, 2010. "Reasonable people did disagree : optimism and pessimism about the U.S. housing market before the crash," Public Policy Discussion Paper 10-5, Federal Reserve Bank of Boston.
  3. Richard J. Rosen, 2008. "The role of lenders in the home price boom," Working Paper Series WP-08-16, Federal Reserve Bank of Chicago.
  4. Richard J. Rosen, 2011. "Competition in mortgage markets: the effect of lender type on loan characteristics," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 2-21.

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