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The 1998 ?2005 Housing "Bubble" and the Current "Correction": What’s Different This Time?

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Author Info

  • William C. Wheaton

    ()
    (Massachusetts Institute of Technology Cambridge, MA 02139)

  • Gleb Nechayev

    ()
    (Torto Wheaton Research Boston, MA 02110-3036)

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    Abstract

    This paper examines the inflation in housing prices between 1998 and 2005 and investigates whether this run-up in prices can be ‘‘explained’’ by increases in demand fundamentals such as population, income growth, and the decline in interest rates over this period. Time series models are estimated for 59 MSA markets and price changes from 1998 to 2005 are dynamically forecast using actual economic fundamentals to drive the models. In all 59 markets, the growth in fundamentals from 1998 to 2005 forecasts price growth that is far below that which actually occurred. An examination of the 2005 forecast errors reveals they are greater in larger MSAs, in MSAs where second home and speculative buying was prevalent, and in MSAs where indicators suggest the sub-prime mortgage market was most active. These latter factors are unique to the recent housing market and hence make it difficult to asses if and how far housing prices will ‘‘correct’’ after 2005.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol30n01/01.1_26.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal journal of Real Estate Research.

    Volume (Year): 30 (2008)
    Issue (Month): 1 ()
    Pages: 1-26

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    Handle: RePEc:jre:issued:v:30:n:1:2008:p:1-26

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Web page: http://www.aresnet.org/

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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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    Cited by:
    1. Huang, MeiChi, 2014. "Bubble-like housing boom–bust cycles: Evidence from the predictive power of households’ expectations," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 2-16.
    2. Matteo Iacoviello & Stefano Neri, 2007. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," Boston College Working Papers in Economics 659, Boston College Department of Economics, revised 23 Oct 2009.
    3. repec:fip:fedreq:y:2012:i:2q:p:111-138:n:vol.98no.2 is not listed on IDEAS
    4. Breck Robinson, 2012. "The performance of non-owner-occupied mortgages during the housing crisis," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 111-138.
    5. Zhang, Yanbing & Hua, Xiuping & Zhao, Liang, 2012. "Exploring determinants of housing prices: A case study of Chinese experience in 1999–2010," Economic Modelling, Elsevier, vol. 29(6), pages 2349-2361.
    6. Marsha J. Courchane & Cynthia Holmes, 2014. "Bubble, Bubble ¡V Is there House Price Trouble -- in Canada?," International Real Estate Review, Asian Real Estate Society, vol. 17(1), pages 109-135.
    7. Frank Packer & Timothy Riddiough, 2012. "Securitisation and the Commercial Property Cycle," RBA Annual Conference Volume, in: Alexandra Heath & Frank Packer & Callan Windsor (ed.), Property Markets and Financial Stability Reserve Bank of Australia.
    8. Brueckner, Jan K. & Calem, Paul S. & Nakamura, Leonard I., 2012. "Subprime mortgages and the housing bubble," Journal of Urban Economics, Elsevier, vol. 71(2), pages 230-243.
    9. Furlong, Frederick T. & Takhtamanova, Yelena & Lang, David, 2014. "Mortgage choice in the housing boom: impacts of house price appreciation and borrower type," Working Paper Series 2014-5, Federal Reserve Bank of San Francisco.

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