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Bubbles in Metropolitan Housing Markets

  • Jesse M. Abraham
  • Patric H. Hendershott

A commonsense and empirically supported approach to explaining metropolitan real house price changes is for the theory to describe an equilibrium price level to which the market is constantly adjusting. The determinants of real house price appreciation, then, can be divided into two groups, one that explains changes in the equilibrium price and the other that accounts for the adjustment dynamics or changing deviations from the equilibrium price. The former group includes the growth in real income and real construction costs and changes in the real after-tax interest rate. The latter group consists of lagged real appreciation and the difference between the actual and equilibrium real house price levels. Either group of variables can explain a little over two-fifths of the variation in real house price movements in 30 cities over the 1977-92 period; together, they explain three-fifths.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4774.

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Date of creation: Jun 1994
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Publication status: published as Journal of Housing Research, vol. 7, no. 2, 1996, pp.191-207.
Handle: RePEc:nbr:nberwo:4774
Note: PE
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  1. Capozza, Dennis R. & Helsley, Robert W., 1989. "The fundamentals of land prices and urban growth," Journal of Urban Economics, Elsevier, vol. 26(3), pages 295-306, November.
  2. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  3. Stiglitz, Joseph E, 1990. "Symposium on Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 13-18, Spring.
  4. Shiller, Robert J, 1990. "Speculative Prices and Popular Models," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 55-65, Spring.
  5. Abraham, Jesse M., 1987. "Income redistribution during a disinflation," Journal of Macroeconomics, Elsevier, vol. 9(2), pages 203-221.
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