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Who pays the price when housing bubbles burst? Evidence from the American Community Survey


  • Martha A. Starr
  • Cynthia Bansak


There has been much debate in recent years about whether the Federal Reserve should have taken action against the housing-price bubble as it was forming. One argument in favor of using monetary policy to offset asset-price bubbles is that it may be impossible after the bubble bursts to ease policy hard enough or fast enough to offset a strong contraction. While the fall in housing prices since 2006 has clearly increased unemployment and depressed growth, much less is known about how the costs have been distributed across households of different means. This paper uses data from the Census Bureau's annual American Community Survey (ACS) to examine this question. We first lay out the mechanisms via which a housing-market bust would be expected to affect households, in terms of incomes, employment, assets, and ability to service debt. We then use the ACS data to analyze how the house-price bust has affected households with different characteristics, differentiating between communities in which home prices did and did not boom and bust. Our results suggest that costs of the bubble have tended to fall on households less able to endure periods of financial distress. This lends further support to the argument that monetary policy oriented to social welfare should tackle bubbles ex ante rather than ex post.

Suggested Citation

  • Martha A. Starr & Cynthia Bansak, 2010. "Who pays the price when housing bubbles burst? Evidence from the American Community Survey," Working Papers 2010-02, American University, Department of Economics.
  • Handle: RePEc:amu:wpaper:2010-02

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    References listed on IDEAS

    1. Robert W. Staiger & Frank A. Wolak, 1994. "Measuring Industry-Specific Protection: Antidumping in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1994 Micr), pages 51-118.
    2. Robert M. Feinberg & Kara M. Reynolds, 2006. "The Spread of Antidumping Regimes and the Role of Retaliation in Filings," Southern Economic Journal, Southern Economic Association, vol. 72(4), pages 877-890, April.
    3. Gunning-Trant, Caroline & Carter, Colin A., 2003. "Trade Remedy Laws And Nafta Agricultural Trade," Working Papers 11962, University of California, Davis, Department of Agricultural and Resource Economics.
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