What will it take to restore the housing market?
By: [by] William C. Wheaton [and] Gleb Nechayev
Contributors: Nechayev-Katzev, Gleb L. (Gleb Leonidovich); Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 09-06; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 09-06.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2009
Place of publication: Cambridge, MA
Language: eng
Number of pages: 25
Description: his paper examines the causes of the run up in house prices between 1998 and 2006 and the subsequent fall. It is argued that two unique factors have been at work: a true "bubble" in 2nd homes, and a fundamental expansion and now contraction of mortgage credit availability. These "new" factors render traditional econometric forecasting relatively useless in judging where markets will go in the future. Instead the paper relies on theory - suggesting that a recovery in sales and an accompanying reduction in the for-sale inventory are both necessary and sufficient to restore price stability and then growth. The paper shows that the relationships between sales, prices and the inventory are complicated and reviews recent econometric evidence about them. A recovery in prices will require (1) renewed purchases of housing by 1st time buyers as well as investors, (2) several years more of record low construction, and (3) some form of amelioration or resolution of foreclosures. Keywords: Housing. JEL Classifications: R2
Notes: "March 1, 2009."

Includes bibliographical references (p. 23-24).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.