IDEAS home Printed from https://ideas.repec.org/a/bin/bpeajo/v34y2003i2003-2p299-362.html
   My bibliography  Save this article

Is There a Bubble in the Housing Market?

Author

Listed:
  • Karl E. Case

    (Wellesley College)

  • Robert J. Shiller

    (Yale University)

Abstract

This paper looks for evidence of a bubble in U.S. housing prices. It analyzes quarterly state-level data over 1985-2002, focusing on the relationship between home prices and selected fundamental variables. Income per capita alone largely explains price changes in all but eight states; in the latter, large price movements are observed unrelated to the fundamentals. Results from a new survey of recent homebuyers in the Los Angeles, San Francisco, Boston, and Milwaukee metropolitan areas are reported. This survey replicates an almost identical 1988 survey and finds, as before, that buyers in most of these markets perceive little risk in their housing investment, have unrealistic expectations about future price increases, and hold economically implausible beliefs about home price behavior—findings consistent with a bubble. Prices in such markets could stall or decline, but only if such declines are simultaneous or spread to other markets are significant effects on the national economy likely.

Suggested Citation

  • 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.
  • Handle: RePEc:bin:bpeajo:v:34:y:2003:i:2003-2:p:299-362
    as

    Download full text from publisher

    File URL: https://www.brookings.edu/wp-content/uploads/2003/06/2003b_bpea_caseshiller.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Edward L. Glaeser & Joseph Gyourko, "undated". "The Impact of Zoning on Housing Affordability," Zell/Lurie Center Working Papers 395, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
    2. Malpezzi, Stephen, 1999. "A Simple Error Correction Model of House Prices," Journal of Housing Economics, Elsevier, vol. 8(1), pages 27-62, March.
    3. Genesove, David & Mayer, Christopher J, 1997. "Equity and Time to Sale in the Real Estate Market," American Economic Review, American Economic Association, vol. 87(3), pages 255-269, June.
    4. Bewley, Truman, 2002. "Interviews as a valid empirical tool in economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 31(4), pages 343-353.
    5. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:pri:indrel:dsp0141687h476 is not listed on IDEAS
    2. David Albouy & Andrew Hanson, 2014. "Are Houses Too Big or In the Wrong Place? Tax Benefits to Housing and Inefficiencies in Location and Consumption," Tax Policy and the Economy, University of Chicago Press, vol. 28(1), pages 63-96.
    3. Kajuth, Florian & Knetsch, Thomas A. & Pinkwart, Nicolas, 2013. "Assessing house prices in Germany: Evidence from an estimated stock-flow model using regional data," Discussion Papers 46/2013, Deutsche Bundesbank.
    4. Thomas Lindh & Bo Malmberg, 2008. "Demography and housing demand—what can we learn from residential construction data?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(3), pages 521-539, July.
    5. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
    6. Markus Haavio & Heikki Kauppi, 2006. "House price fluctuations and residential sorting," 2006 Meeting Papers 774, Society for Economic Dynamics.
    7. François Ortalo-Magné & Sven Rady, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints ," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 459-485.
    8. Christophe André, 2016. "Household debt in OECD countries: stylised facts and policy issues," Chapters from NBP Conference Publications, in: Hanna Augustyniak & Jacek Łaszek & Krzysztof Olszewski & Joanna Waszczuk (ed.), Papers presented during the Narodowy Bank Polski Workshop: Recent trends in the real estate market and its analysis - 2015 edition, chapter 2, pages v1, 33-85, Narodowy Bank Polski, Economic Research Department.
    9. Anundsen, André K. & Jansen, Eilev S., 2013. "Self-reinforcing effects between housing prices and credit," Journal of Housing Economics, Elsevier, vol. 22(3), pages 192-212.
    10. Jonathan McCarthy & Richard Peach, 2002. "Monetary policy transmission to residential investment," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 139-158.
    11. Wouter Vermeulen & Jan Rouwendal, 2007. "Housing supply in the Netherlands," CPB Discussion Paper 87, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Oikarinen, Elias & Peltola, Risto & Valtonen, Eero, 2015. "Regional variation in the elasticity of supply of housing, and its determinants: The case of a small sparsely populated country," Regional Science and Urban Economics, Elsevier, vol. 50(C), pages 18-30.
    13. Christophe Blot, 2006. "Peut-on parler de bulle sur le marché immobilier au Luxembourg ?," BCL working papers 20, Central Bank of Luxembourg.
    14. Gábor Vadas, 2004. "Modelling Households’ Savings and Dwellings Investment – A Portfolio Choice Approach," International Real Estate Review, Global Social Science Institute, vol. 7(1), pages 31-55.
    15. Christophe Andr頍 & Luis A. Gil-Alana & Rangan Gupta, 2014. "Testing for persistence in housing price-to-income and price-to-rent ratios in 16 OECD countries," Applied Economics, Taylor & Francis Journals, vol. 46(18), pages 2127-2138, June.
    16. Zohrabyan, Tatevik & Leatham, David J. & Bessler, David A., 2008. "Cointegration Analysis of Regional House Prices in U.S," 2007 Agricultural and Rural Finance Markets in Transition, October 4-5, 2007, St. Louis, Missouri 48138, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    17. Gan, Li & Wang, Pengfei & Zhang, Qinghua, 2018. "Market thickness and the impact of unemployment on housing market outcomes," Journal of Monetary Economics, Elsevier, vol. 98(C), pages 27-49.
    18. Li Gan & Qinghua Zhang, 2006. "The Thick Market Effect on Housing Markets Transactions," NBER Working Papers 12134, National Bureau of Economic Research, Inc.
    19. Edward L. Glaeser & Jesse M. Shapiro, 2003. "The Benefits of the Home Mortgage Interest Deduction," NBER Chapters, in: Tax Policy and the Economy, Volume 17, pages 37-82, National Bureau of Economic Research, Inc.
    20. André K. Anundsen & Eilev S. Jansen, 2013. "Self-reinforcing effects between housing prices and credit: an extended version," Discussion Papers 756, Statistics Norway, Research Department.
    21. 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.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bin:bpeajo:v:34:y:2003:i:2003-2:p:299-362. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jennifer Ambrosino). General contact details of provider: https://edirc.repec.org/data/esbrous.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.