After the Fall: An Ex Post Characterization of Housing Price Declines Across Metropolitan Areas

Wiley-Blackwell Publishing
Publication Type:
Journal Article
Contemporary Economic Policy, 2013, 31 (1), pp. 22 - 43
Issue Date:
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Housing prices have plummeted across the United States. This article examines differences in the magnitude of housing price decreases across metropolitan areas. A small number of housing market variables observable before the fall are capable of explaining over 70% of the considerable variation in price declines. An additional non-parametric analysis suggests that exceeding particular thresholds for some of the key predictors is associated with much larger price drops. These findings are consistent with historical price patterns, which raises questions about the validity of mortgage pricing policy and risk diversification norms in the United States. The analysis points to a set of stylized facts concerning the housing price bubble that need to be explained and suggests fruitful hypotheses for understanding the dramatic housing price declines.
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