Gabriel Chodorow-Reich, Harvard University

"The 2000s Housing Cycle With 2020 Hindsight: A Neo-Kindlebergerian View"


We re-examine the 2000s housing cycle with the benefit of a decade of additional data following the boom and bust. At the city level, areas with the largest price increases during the boom had the largest busts, but have also had faster growth during the ``"rebound'' period since the bust ended. As a result, these areas have also had the largest price appreciation over the 25 year period including the boom, bust, and subsequent rebound. Long-run population, income, and rent growth all correlate positively with a larger house price boom, and these correlations remain intact in instrumental variable specifications using plausibly exogenous shifters of population and income. We interpret the boom in a learning model in which the combination of over-optimism about fundamental-driven house price increases generates a mania and foreclosures generate a crash, but where fundamental changes to local areas explains both short and long-run changes.

Joint with Adam Guren and Tim McQuade

Contact person: Daphne Skandalis