![]() ![]() There's been a decades-long economic debate over if and why manias cause homes to depart from their fundamentals. Importantly, the fundamental value of a house is determined by the supply and demand for houses in a given area: If it's desirable to live in that area and there aren't enough homes for incoming residents, the fundamental value of each house will rise. A house's fundamental value includes things such as its proximity to good-paying jobs whether it's in a locale with a nice climate or fun things to do whether the school district is good whether it has desirable characteristics, such as good square footage and an architectural style that's in vogue. Fundamentals are what an asset is actually worth. Bubbles 101Įconomists define bubbles as when the prices of assets - such as stocks and houses - depart from their fundamentals. But they also find evidence that may provide some comfort to homeowners: Something real can explain the long-run upward trend in home prices. ![]() They find evidence that the price surge in the 2000s was indeed a bubble, which serves as a scary reminder that the housing market can go wild and crash. It has the perfect title: "The 2000s Housing Cycle With 2020 Hindsight." ![]() McQuade helps to explain the dynamics of our bonkers housing market. Are we in another bubble? Or maybe the housing bubble a couple decades ago wasn't really a bubble? If so, then why was there a crash?Ī new study by economists Gabriel Chodorow-Reich, Adam M. Now that home prices have surpassed the peak that preceded the 2000s housing crash, many people are worried. ![]()
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