EconPapers    
Economics at your fingertips  
 

Housing price bubbles, new supply, and within-city dynamics

Crocker H. Liu, Adam Nowak and Stuart Rosenthal ()

Journal of Urban Economics, 2016, vol. 96, issue C, 55-72

Abstract: Although there is broad recognition that cities differ in their tendency to experience house price bubbles, most studies assume away any possibility of within-city heterogeneity in response to a bubble. We develop a model that suggests that this assumption may be appropriate when markets are rising but can be far from reality on the bust side of a bubble. During a housing boom, new construction and related supply adjustments by developers ensure stable relative prices between low- and high-quality segments of the housing market. On the bust side of a bubble, however, reduced housing starts allow demand-side forces and mortgage default to create pressure for relative prices to diverge across market segments. Absent a change in technology, as markets recover and new construction rebounds, relative prices should revert back to pre-crash levels. Evidence based on 2000–2013 single-family home sales in Phoenix, Arizona supports this modeling framework. Additional evidence also suggests that high rates of mortgage default contributed to divergence in relative prices when markets crashed.

Keywords: Housing bubble; Repeat sales; Price dynamics (search for similar items in EconPapers)
JEL-codes: R31 R51 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0094119016300390
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:96:y:2016:i:c:p:55-72

Access Statistics for this article

Journal of Urban Economics is currently edited by S.S. Rosenthal and W.C. Strange

More articles in Journal of Urban Economics from Elsevier
Series data maintained by Dana Niculescu ().

 
Page updated 2017-10-28
Handle: RePEc:eee:juecon:v:96:y:2016:i:c:p:55-72