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Bubbles in Metropolitan Housing Markets

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  • Jesse M. Abraham
  • Patric H. Hendershott

Abstract

A commonsense and empirically supported approach to explaining metropolitan real house price changes is for the theory to describe an equilibrium price level to which the market is constantly adjusting. The determinants of real house price appreciation, then, can be divided into two groups, one that explains changes in the equilibrium price and the other that accounts for the adjustment dynamics or changing deviations from the equilibrium price. The former group includes the growth in real income and real construction costs and changes in the real after-tax interest rate. The latter group consists of lagged real appreciation and the difference between the actual and equilibrium real house price levels. Either group of variables can explain a little over two-fifths of the variation in real house price movements in 30 cities over the 1977-92 period; together, they explain three-fifths.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4774.

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Date of creation: Jun 1994
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Handle: RePEc:nbr:nberwo:4774

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  1. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  2. Stiglitz, Joseph E, 1990. "Symposium on Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 13-18, Spring.
  3. Abraham, Jesse M., 1987. "Income redistribution during a disinflation," Journal of Macroeconomics, Elsevier, vol. 9(2), pages 203-221.
  4. Shiller, Robert J, 1990. "Speculative Prices and Popular Models," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 55-65, Spring.
  5. Capozza, Dennis R. & Helsley, Robert W., 1989. "The fundamentals of land prices and urban growth," Journal of Urban Economics, Elsevier, vol. 26(3), pages 295-306, November.
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Cited by:
  1. Patric H. Hendershott, . "Uses of Equilibrium Models in Real Estate Research," Research in Financial Economics 9612, Ohio State University.
  2. Michal Hlavacek & Lubos Komarek, 2009. "Housing Price Bubbles and their Determinants in the Czech Republic and its Regions," Working Papers 2009/12, Czech National Bank, Research Department.
  3. Jason Allen & Robert Amano & David P. Byrne & Allen W. Gregory, 2006. "Canadian City Housing Prices and Urban Market Segmentation," Working Papers 06-49, Bank of Canada.
  4. Matthew Higgins & Carol Osler, 1998. "Asset market hangovers and economic growth: U.S. housing markets," Research Paper 9801, Federal Reserve Bank of New York.
  5. Owen Lamont & Jeremy C. Stein, 1999. "Leverage and House-Price Dynamics in U.S. Cities," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 498-514, Autumn.
  6. Follain, James R. & Giertz, Seth H., 2011. "Using Monte Carlo simulations to establish a new house price stress test," Journal of Housing Economics, Elsevier, vol. 20(2), pages 101-119, June.
  7. Roger Congleton, 2009. "On the political economy of the financial crisis and bailout of 2008–2009," Public Choice, Springer, vol. 140(3), pages 287-317, September.
  8. Qin Xiao & Randolph Gee Kwang Tan, 2006. "Signal Extraction with Kalman Filter: A Study of the Hong Kong Property Price Bubbles," Economic Growth centre Working Paper Series 0601, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.

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