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Understanding Recent Trends in House Prices and Home Ownership

This paper looks at a broad array of evidence concerning the recent boom in home prices, and considers what this means for future home prices and the economy. It does not appear possible to explain the boom in terms of fundamentals such as rents or construction costs. A psychological theory, that represents the boom as taking place because of a feedback mechanism or social epidemic that encourages a view of housing as an important investment opportunity, fits the evidence better. Three case studies of past booms are considered for comparison: the US housing boom of 1950, the US farmland boom of the 1970s, and the temporary interruption 2004-5 of the UK housing boom. The paper concludes that while it is possible that prices will continue to go up as is commonly expected, there is a high probability of steady and substantial real home price declines extending over years to come.

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File URL: http://cowles.yale.edu/sites/default/files/files/pub/d16/d1630.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1630.

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Length: pages
Date of creation: Sep 2007
Date of revision: Oct 2007
Publication status: Published in Housing, Housing Finance and Monetary Policy, Jackson Hole Conference Series, Federal Reserve Bank of Kansas City, 2008, pp. 85-123
Handle: RePEc:cwl:cwldpp:1630
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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. John B. Taylor, 2007. "Housing and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-476.
  2. Robert J. Shiller, 2003. "From Efficient Markets Theory to Behavioral Finance," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 83-104, Winter.
  3. Jonathan Heathcote & Morris Davis, 2004. "The Price and Quantity of Residential Land in the United States," 2004 Meeting Papers 32, Society for Economic Dynamics.
  4. Leo Grebler & David M. Blank & Louis Winnick, 1956. "Capital Formation in Residential Real Estate: Trends and Prospects," NBER Books, National Bureau of Economic Research, Inc, number greb56-1, September.
  5. 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.
  6. Edward L. Glaeser & Joseph Gyourko, 2002. "The Impact of Zoning on Housing Affordability," NBER Working Papers 8835, National Bureau of Economic Research, Inc.
  7. Robert J Shiller, 2007. "Low Interest Rates and High Asset Prices: An Interpretation in Terms of Changing Popular Models," Levine's Bibliography 122247000000001682, UCLA Department of Economics.
  8. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1233-1260.
  9. Joseph Gyourko & Christopher Mayer & Todd Sinai, 2006. "Superstar Cities," NBER Working Papers 12355, National Bureau of Economic Research, Inc.
  10. Glaser, Markus & Nöth, Markus & Weber, Martin, 2003. "Behavioral finance," Papers 03-14, Sonderforschungsbreich 504.
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