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Root Causes of The Housing Bubble

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Author Info
Kaizoji, Taisei

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Abstract

In this chapter we investigate root causes of the recent U.S. housing bubble which has been caused a serious downturn in U.S. economic growth since autumn of 2008. We propose a simple model of housing markets in order to indicate the possible determinants of recent housing prices. Utilizing the model, we verify a number of hypotheses which have been proposed in the recent literature on the housing bubbles. We suggest that the main causes of the housing bubble from 2000 to 2006 are (i) non-elastic housing supply in the metropolitan areas, and (ii) declines in the mortgage loan rate and the housing premium by the massive mortgage credit expansion. We also suggest that these factors were strongly influenced by policies that governments and the Federal reserve Board performed.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16807.

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Date of creation: 10 Aug 2009
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Handle: RePEc:pra:mprapa:16807

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Related research
Keywords: Housing bubble; The price-to-rent ratio;

Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
R11 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Analysis of Growth, Development, and Changes

This paper has been announced in the following NEP Reports:

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  1. Morris A. Davis & Andreas Lehnert & Robert F. Martin, 2008. "The Rent-Price Ratio For The Aggregate Stock Of Owner-Occupied Housing," Review of Income and Wealth, Blackwell Publishing, vol. 54(2), pages 279-284, 06. [Downloadable!] (restricted)
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  2. Patric H. Hendershott & Joel Slemrod, 1983. "Taxes and the User Cost of Capital for Owner-Occupied Housing," NBER Working Papers 0929, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Edward L. Glaeser & Joseph Gyourko, 2003. "The impact of building restrictions on housing affordability," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 21-39. [Downloadable!]
  4. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD, Economics Department. [Downloadable!]
  5. 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. [Downloadable!]
  6. Campbell, Sean D. & Davis, Morris A. & Gallin, Joshua & Martin, Robert F., 2009. "What moves housing markets: A variance decomposition of the rent-price ratio," Journal of Urban Economics, Elsevier, vol. 66(2), pages 90-102, September. [Downloadable!] (restricted)
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This page was last updated on 2009-11-27.

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