Bubbles, Post-Crash Dynamics, and the Housing Market

Crocker Liu, Adam Nowak and Stuart Rosenthal ()
Additional contact information
Crocker Liu: Cornell University, School of Hotel Administration
Adam Nowak: West Virginia University, College of Business and Economics

No 14-18, Working Papers from Department of Economics, West Virginia University

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.

Keywords: Housing Bubble; Repeat Sales; Post-Crash Dynamics (search for similar items in EconPapers)
JEL-codes: G12 G14 R31 R51 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2014-05
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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