The 2000s Housing Cycle With 2020 Hindsight: A Neo-Kindlebergerian View / Gabriel Chodorow-Reich, Adam M. Guren, Timothy J. McQuade.

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Chodorow-Reich, Gabriel

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w29140.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: With "2020 hindsight," the 2000s housing cycle is not a boom-bust but rather a boom- bust-rebound at both the national level and across cities. We argue this pattern reflects a larger role for fundamentally-rooted explanations than previously thought. We construct a city-level long-run fundamental using a spatial equilibrium regression framework in which house prices are determined by local income, amenities, and supply. The fundamental predicts not only 1997-2019 price and rent growth but also the amplitude of the boom-bust-rebound and foreclosures. This evidence motivates our neo-Kindlebergerian model, in which an improvement in fundamentals triggers a boom-bust-rebound. Agents learn about the fundamentals by observing "dividends" but become over-optimistic due to diagnostic expectations. A bust ensues when over-optimistic beliefs start to correct, exacerbated by a price-foreclosure spiral that drives prices below their long-run level. The rebound follows as prices converge to a path commensurate with higher fundamental growth. The estimated model explains the boom-bust-rebound with a single fundamental shock and accounts quantitatively for cross-city patterns in the dynamics of prices and foreclosures.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w29140 (Browse shelf(Opens below))	Not For Loan

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August 2021.

With "2020 hindsight," the 2000s housing cycle is not a boom-bust but rather a boom- bust-rebound at both the national level and across cities. We argue this pattern reflects a larger role for fundamentally-rooted explanations than previously thought. We construct a city-level long-run fundamental using a spatial equilibrium regression framework in which house prices are determined by local income, amenities, and supply. The fundamental predicts not only 1997-2019 price and rent growth but also the amplitude of the boom-bust-rebound and foreclosures. This evidence motivates our neo-Kindlebergerian model, in which an improvement in fundamentals triggers a boom-bust-rebound. Agents learn about the fundamentals by observing "dividends" but become over-optimistic due to diagnostic expectations. A bust ensues when over-optimistic beliefs start to correct, exacerbated by a price-foreclosure spiral that drives prices below their long-run level. The rebound follows as prices converge to a path commensurate with higher fundamental growth. The estimated model explains the boom-bust-rebound with a single fundamental shock and accounts quantitatively for cross-city patterns in the dynamics of prices and foreclosures.