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Bubbles, Post-Crash Dynamics, and the Housing Market

Author

Listed:
  • Crocker H. Liu

    (Cornell University, School of Hotel Administration)

  • Adam Nowak

    (West Virginia University, College of Business and Economics)

  • Stuart Rosenthal

    (Syracuse University, Department of Economics and Center for Policy Research)

Abstract

This paper documents and explains previously unrecognized post-crash dynamics following the collapse of a housing bubble. A simple model predicts that speculative developers ensure stable pre-crash relative prices between small and large homes while their post-crash exit allows small-home relative values to fall. Evidence from Phoenix supports the model. Although home prices doubled 2004-2006, relative prices of small-to-large homes remained nearly constant but then plummeted post-crash. As speculative developers return relative prices must return to pre-boom levels, consistent with patterns since 2011. Anticipated mean reversion indicates that cities can reduce post-crash volatility and mispricing by publicizing size-stratified house price indexes.

Suggested Citation

  • Crocker H. Liu & Adam Nowak & Stuart Rosenthal, 2014. "Bubbles, Post-Crash Dynamics, and the Housing Market," Working Papers 14-18, Department of Economics, West Virginia University.
    • Handle: RePEc:wvu:wpaper:14-18
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    File URL: https://researchrepository.wvu.edu/cgi/viewcontent.cgi?article=1108&context=econ_working-papers
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    References listed on IDEAS

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    Cited by:

    1. Leon Stirk-Wang & Paul Thorsnes, 2017. "Geographic variation in intra-city house price appreciation over the boom-bust cycle: evidence from Auckland, NZ," Working Papers 1714, University of Otago, Department of Economics, revised Dec 2017.
    2. Jan Rouwendal & Mark van Duijn, 2017. "Measuring Diverging House Prices," Tinbergen Institute Discussion Papers 17-028/VIII, Tinbergen Institute, revised 16 Apr 2018.
    3. Chauvet, Marcelle & Gabriel, Stuart & Lutz, Chandler, 2016. "Mortgage default risk: New evidence from internet search queries," Journal of Urban Economics, Elsevier, vol. 96(C), pages 91-111.
    4. Ismir Mulalic & Holger Rasmussen & Jan Rouwendal & Hans Henrik Woltmann, 2017. "The Financial Crisis and Diverging House Prices: Evidence from the Copenhagen Metropolitan Area," Tinbergen Institute Discussion Papers 17-084/VIII, Tinbergen Institute.
    5. Bruneel-Zupanc, Christophe Alain, 2021. "Imperfect Information, Learning and Housing Market Dynamics," TSE Working Papers 21-1186, Toulouse School of Economics (TSE).
    6. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 813-886, Elsevier.
    7. Han, Lu & Strange, William C., 2016. "What is the role of the asking price for a house?," Journal of Urban Economics, Elsevier, vol. 93(C), pages 115-130.
    8. Dooruj Rambaccussing, 2021. "The price–rent ratio inequality in Scottish Cities: fluctuations in discount rates and expected rent growth," SN Business & Economics, Springer, vol. 1(9), pages 1-15, September.

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    More about this item

    Keywords

    Housing Bubble; Repeat Sales; Post-Crash Dynamics;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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