Bubbles in Metropolitan Housing Markets
J. OF HOUSING RESEARCH, Vol. 7 No. 2, 1996
Posted: 22 Nov 1996
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 another 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 overthe 1977-92 period; together, they explain three-fifths.
JEL Classification: D46
Suggested Citation: Suggested Citation