Is There a Bubble in the Housing Market Now?
NFI Policy Brief No. 2005-PB-01
34 Pages Posted: 12 Aug 2006
Date Written: October 2005
Real home prices have been rising strongly since the mid-1990s, and have continued to do so even as the economy has weakened. This has sparked the concern as to whether there is a bubble in the housing market, the collapse of which could harm the overall economy. Taking into account fundamentals - including more appropriate price indices and interest rates - aggregate home prices are relatively high but not yet out of line. Home prices in some areas still may be set for a fall; however, prices in these areas typically have been volatile. Previous large home value declines in these areas have not had a sizable negative effect on the aggregate economy.
Keywords: housing bubble, home price indexes
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By Yavuz Arslan