Housing bubble

A housing bubble (or housing price bubble) is one of several types of asset price bubbles which periodically occur in the market. The basic concept of a housing bubble is the same as for other asset bubbles, consisting of two main phases. First there is a period where house prices increase dramatically, driven more and more by speculation. In the second phase, house prices fall dramatically. Housing bubbles tend to be among the asset bubbles with the largest effect on the real economy because they are credit-fueled,^[1],and a large number of households participate and not just investors, and because the wealth effect from housing tends to be larger than for other types of financial assets.^[2]

^ Brunnermeier, M.K. and Oehmke, M. (2012) Bubbles, Financial Crises, and Systemic Risk NBER Working Paper No. 18398
^ see eg. Case, K.E., Quigley, J. and Shiller R. (2001). Comparing wealth effects: the stock market versus the housing market. National Bureau of Economic Research, Working Paper No. 8606., Benjamin, J., Chinloy, P. and Jud, D. (2004). ”Real estate versus financial wealth in consumption”. In: Journal of Real Estate Finance and Economics 29, pp. 341-354., and Campbell, John Y.; Cocco, João F. (October 2004). "How Do House Prices Affect Consumption? Evidence From Micro Data". Harvard Institute of Economic Research, Discussion Paper No. 2045. Harvard Institute of Economic Research. Archived (PDF) from the original on May 2, 2006.

[1] Brunnermeier, M.K. and Oehmke, M. (2012) Bubbles, Financial Crises, and Systemic Risk NBER Working Paper No. 18398

[2] see eg. Case, K.E., Quigley, J. and Shiller R. (2001). Comparing wealth effects: the stock market versus the housing market. National Bureau of Economic Research, Working Paper No. 8606., Benjamin, J., Chinloy, P. and Jud, D. (2004). ”Real estate versus financial wealth in consumption”. In: Journal of Real Estate Finance and Economics 29, pp. 341-354., and Campbell, John Y.; Cocco, João F. (October 2004). "How Do House Prices Affect Consumption? Evidence From Micro Data". Harvard Institute of Economic Research, Discussion Paper No. 2045. Harvard Institute of Economic Research. Archived (PDF) from the original on May 2, 2006.

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