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Momentum and House Price Growth in the United States: Anatomy of a Bubble

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  • Rose N. Lai
  • Robert A. Van Order

Abstract

This article analyzes the bubble in property values across cities in the United States from 1999 through 2005. We find evidence of momentum in house price growth (relative to growth in rents) away from the underlying fundamentals throughout the 1980–2005 period; however, momentum increased after 1999. We find that the bubble happened mostly after 2003; it was for a relatively short period and was characterized by a series of positive, seemingly random, shocks that were associated with the surge in the subprime market and the decline in short-term interest rates. Before that price changes were reasonably well explained by the fundamentals, particularly the decline in long‐term interest rates in the early part of the bubble period. We do not find evidence of a tendency for prices relative to rents to revert to a long‐run trend.

Suggested Citation

  • Rose N. Lai & Robert A. Van Order, 2010. "Momentum and House Price Growth in the United States: Anatomy of a Bubble," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(4), pages 753-773, Winter.
  • Handle: RePEc:bla:reesec:v:38:y:2010:i:4:p:753-773
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    File URL: http://hdl.handle.net/10.1111/j.1540-6229.2010.00282.x
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    References listed on IDEAS

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    Cited by:

    1. Maximilian Brauers & Matthias Thomas & Joachim Zietz, 2014. "Are There Rational Bubbles in REITs? New Evidence from a Complex Systems Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 49(2), pages 165-184, August.
    2. repec:oup:jfinec:v:16:y:2018:i:1:p:34-62. is not listed on IDEAS
    3. repec:bla:germec:v:20:y:2019:i:4:p:e759-e794 is not listed on IDEAS
    4. Massimo Guidolin & Francesco Ravazzolo & Andrea Tortora, 2014. "Myths and Facts about the Alleged Over-Pricing of U.S. Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 49(4), pages 477-523, November.
    5. Markus Hertrich, 2019. "A Novel Housing Price Misalignment Indicator for Germany," German Economic Review, Verein für Socialpolitik, vol. 20(4), pages 759-794, November.
    6. Ogonna Nneji & Chris Brooks & Charles Ward, 2013. "Commercial Real Estate and Equity Market Bubbles: Are They Contagious to REITs?," Urban Studies, Urban Studies Journal Limited, vol. 50(12), pages 2496-2516, September.
    7. Ogonna Nneji & Chris Brooks & Charles Ward, 2011. "Intrinsic and Rational Speculative Bubbles in the U.S. Housing Market 1960-2009," ICMA Centre Discussion Papers in Finance icma-dp2011-01, Henley Business School, Reading University.
    8. Daniele Bianchi & Massimo Guidolin & Francesco Ravazzolo, 2018. "Dissecting the 2007–2009 Real Estate Market Bust: Systematic Pricing Correction or Just a Housing Fad?," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 16(1), pages 34-62.
    9. Jarl G. Kallberg & Crocker H. Liu & Paolo Pasquariello, 2014. "On the Price Comovement of U.S. Residential Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(1), pages 71-108, March.
    10. MeiChi Huang & LinYing Yeh, 2015. "Should the Fed take extra action for the recent housing bubble? Evidence from asymmetric transitory shocks," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(4), pages 762-781, October.
    11. repec:eee:reveco:v:55:y:2018:i:c:p:145-172 is not listed on IDEAS
    12. Wang, Peijie & Brand, Steven, 2015. "A new approach to estimating value–income ratios with income growth and time-varying yields," European Journal of Operational Research, Elsevier, vol. 242(1), pages 182-187.
    13. repec:gam:jjrfmx:v:11:y:2018:i:3:p:54-:d:169559 is not listed on IDEAS
    14. Brzezicka Justyna & Wisniewski Radosław, 2014. "Price Bubble In The Real Estate Market - Behavioral Aspects," Real Estate Management and Valuation, Sciendo, vol. 22(1), pages 1-14, March.
    15. Todd Sinai, 2012. "House Price Moments in Boom-Bust Cycles," NBER Chapters, in: Housing and the Financial Crisis, pages 19-68, National Bureau of Economic Research, Inc.
    16. repec:bla:intfin:v:20:y:2017:i:1:p:64-91 is not listed on IDEAS
    17. repec:kap:jrefec:v:57:y:2018:i:4:d:10.1007_s11146-017-9602-7 is not listed on IDEAS
    18. repec:kap:jrefec:v:59:y:2019:i:2:d:10.1007_s11146-018-9675-y is not listed on IDEAS
    19. Su Han Chan & Ko Wang & Jing Yang, 2011. "A Rational Explanation for Boom-and-Bust Price Patterns in Real Estate Markets," International Real Estate Review, Asian Real Estate Society, vol. 14(3), pages 257-282.
    20. J. R. Kim & K. Chung, 2014. "Regime switching and the (in)stability of the price-rent relationship: evidence from the US," Applied Economics, Taylor & Francis Journals, vol. 46(33), pages 4041-4052, November.
    21. repec:eee:chieco:v:50:y:2018:i:c:p:294-312 is not listed on IDEAS
    22. Yunus, Nafeesa, 2015. "Trends and convergence in global housing markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 100-112.
    23. Ogonna Nneji & Chris Brooks & Charles Ward, 2011. "Housing and equity bubbles: Are they contagious to REITs?," ICMA Centre Discussion Papers in Finance icma-dp2011-11, Henley Business School, Reading University.
    24. Martijn I. Dröes & Marc K. Francke, 2018. "What Causes the Positive Price-Turnover Correlation in European Housing Markets?," The Journal of Real Estate Finance and Economics, Springer, vol. 57(4), pages 618-646, November.

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