Document Type
Working Paper
Publication Date
5-12-2014
College/Unit
Chambers College of Business and Economics
Document Number
14-18
Department/Program/Center
Economics
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 smallhome 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.
Digital Commons Citation
Liu, Crocker H.; Nowak, Adam; and Rosenthal, Stuart, "Bubbles, Post-Crash Dynamics, and the Housing Market" (2014). Economics Faculty Working Papers Series. 111.
https://researchrepository.wvu.edu/econ_working-papers/111