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The Supply Side of the Housing Boom and Bust of the 2000s

In: Housing and the Financial Crisis

  • Andrew Haughwout
  • Richard W. Peach
  • John Sporn
  • Joseph Tracy

The boom and subsequent bust in housing construction and prices over the 2000s is widely regarded as a principal contributor to the Financial Panic of 2007 and the subsequent Great Recession. As of this writing, housing market activity remains at depressed levels as the economy slowly resolves the legacy of excess supply and sharply lower prices. Over 2.6 million foreclosures have been completed since 2008 and 1.9 million foreclosures are in process. Much has been written about the demand side of this pronounced housing cycle, in particular, the innovations in mortgage finance and the loosening of underwriting standards that greatly expanded the pool of potential homebuyers. In this paper, we take a closer look at developments on the supply side of the housing market. Following a short literature review, we begin with a descriptive review of housing production, sales, and prices at the national, regional, and state levels. We then look at developments in the homebuilding industry over this period. We also take a closer look at land markets using a quarterly price index for metropolitan statistical areas with both elastic and inelastic housing supplies across the United States. An important question is to what extent the supply side of the market contributed to the boom/bust dynamics. A second question is whether the significant changes in the industrial organization of the homebuilding industry exacerbated or ameliorated this supply impact.

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This chapter was published in:
  • Edward L. Glaeser & Todd Sinai, 2013. "Housing and the Financial Crisis," NBER Books, National Bureau of Economic Research, Inc, number glae11-1, December.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12620.
    Handle: RePEc:nbr:nberch:12620
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March.
    2. Edward L. Glaeser & Joseph Gyourko, . "Urban Decline and Durable Housing," Zell/Lurie Center Working Papers 382, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
    3. Stuart S. Rosenthal, 1999. "Residential Buildings And The Cost Of Construction: New Evidence On The Efficiency Of The Housing Market," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 288-302, May.
    4. A. Saiz, 2008. "On Local Housing Supply Elasticity," ERES eres2008_241, European Real Estate Society (ERES).
    5. Grenadier, Steven R, 1996. " The Strategic Exercise of Options: Development Cascades and Overbuilding in Real Estate Markets," Journal of Finance, American Finance Association, vol. 51(5), pages 1653-79, December.
    6. Glaeser, Edward L. & Gyourko, Joseph & Saiz, Albert, 2008. "Housing supply and housing bubbles," Journal of Urban Economics, Elsevier, vol. 64(2), pages 198-217, September.
    7. Joseph Gyourko & Eduardo Morales & Charles Nathanson & Edward Glaeser, 2011. "Housing Dynamics," 2011 Meeting Papers 307, Society for Economic Dynamics.
    8. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
    9. Ko Wang & Yuqing Zhou, 2000. "Overbuilding: A Game-Theoretic Approach," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(3), pages 493-522.
    10. N. Gregory Mankiw & David N. Weil, 1988. "The Baby Boom, The Baby Bust, and the Housing Market," NBER Working Papers 2794, National Bureau of Economic Research, Inc.
    11. Brent W. Ambrose & Joe Peek, 2008. "Credit Availability and the Structure of the Homebuilding Industry," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 36(4), pages 659-692, December.
    12. Grenadier, Steven R, 1995. "The Persistence of Real Estate Cycles," The Journal of Real Estate Finance and Economics, Springer, vol. 10(2), pages 95-119, March.
    13. Topel, Robert H & Rosen, Sherwin, 1988. "Housing Investment in the United States," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 718-40, August.
    14. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
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