An Econometric Comparison of the Recent US and UK Housing Booms

The US and UK economies have experienced excessive demand for housing for over a decade, causing housing booms in both countries. Consumers have been on a spending spree, based on higher and higher real and perceived home equity values, as well as equity market increases. In the US and UK markets, "bigger is better," or "as much as one can afford," has become the mentality of home buyers, as well as "buy now to take advantage of future higher prices" at which to sell one's house. In the US, interest rates have been mostly held at historic lows since about 1990. The Federal Reserve was praised for a long time for helping the financial markets sustain their roles in the housing markets. Since the housing market crash, beginning about 2006, the Federal Reserve has been blamed for the housing crisis. In the UK, interest rates have been held at more moderate levels, but they still experienced a boom and now a slowing of their housing market. This research will compare the two housing market booms to determine what differences and factors-in-common led to these simultaneous economic situations. This paper was presented at the 18th International Conference of the International Trade and Finance Association, meeting at Universidade Nova de Lisboa, in Lisbon, Portugal, May 22, 2008.