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Research Seminars & Workshops @ IRES


Professor Joseph Gyourko
The Wharton School, University of Pennsylvania

Anatomy of the Beginning of the Housing Boom: U.S. Neighborhoods and Metropolitan Areas, 1993-2009


Date:

30 November 2011, Wednesday

Time:

12.30 pm – 2.00 pm

Venue:

RMI Executive Seminar Room
21 Heng Mui Keng Terrace, Level 4


About The Speaker

Professor Gyourko is currently a research associate at the National Bureau of Economic Research, nonresident senior fellow of the Brookings Institute, Center on Urban and Metropolitan Affairs, and coorganizer of the Public Economics and Housing Policy conference of the NBER Summer Institute. Professor Gyourko is an influential public speaker. His expertise pertains to the areas of public policy and housing market analysis; private equity investing in real estate; real estate securities and valuation issues. His recent research works covers the topics of land use regulations and housing affordability; superstar cities and house prices in coastal markets; commercial real estate cycles. Recently, Straits Times (25 March 2009) has featured a recent book Professor Gyourko and his coauthor, Professor Edward Glaeser from Harvard, -- Rethinking Federal Housing Policy: How to Make Housing Plentiful and Affordable -- discussing how to revamp U.S. housing policy without subsidized lending.

Abstract

We provide novel estimates of the timing, magnitudes, and potential determinants of the start of the last housing boom across American neighborhoods and metropolitan areas (MSAs) using a rich new micro data set containing 23 million housing transactions in 94 metropolitan areas between 1993 and 2009. We also match transactions data with loan information, enabling us to observe household income and other demographics for each neighborhood. Five major findings are reported. First, the start of the boom was not a single, national event. Booms, which are defined by the global breakpoint in an area's price appreciation series, begin at different times over a decade-long period from 1995-2006. Second, the magnitude of the initial jump in house price appreciation at the start of the boom is economically, not just statistically, significant. On average, log house prices are over four points higher during the first year of the boom relative to the previous twelve month period for both MSAs and neighborhoods. There is no evidence that price growth was trending up prior to the start of the boom. Third, local income is the only potential demand shifter found that also had an economically and statistically significant change around the time that local housing booms began. Contemporaneous local income growth is large enough to account for half or more of the initial jump in house price appreciation. Income growth is large and jumps at the same time as house price appreciation in areas that boomed early and have inelastic supplies of housing, but not in late booming areas and those with elastic supply sides. While these estimates indicate that the beginning of the boom was fundamentally justified on average, they do not imply that what followed was rational. Fourth, there is important heterogeneity in that result. Fifth and finally, none of the demand-shifters analyzed show positive pre-trends, but some such as the share of subprime lending, do lag the beginning of the boom. This suggests that key players in the lending market more responded to the boom, rather than caused it to start.

For full paper, download herehttp://www.rst.nus.edu.sg/research/images/pdf1.GIF

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