ACADEMIC: 2003 Analysis of Housing Bubble

Karl E. CaseWellesley College
Robert J. ShillerYale University
Is There a Bubble in the Housing Market?An AnalysisPrepared for the Brookings Panel on Economic ActivitySeptember 4-5, 2003

The popular press is full of speculation that we are in a "housing bubble" that is aboutto burst. Barrons, Money Magazine and The Economist have all run recent feature storiesabout the irrational runup in prices and the potential for a crash in home prices. TheEconomist has had a series of articles with titles like "Castles in Hot Air" "House ofCards" "Bubble Trouble," "Betting the House." These accounts have necessarily raiseda lot of concerns among the general public. But, how do we know if the housing marketis in a bubble?

The basic question is whether expectations of large future price increases aresustaining the market, whether these expectations are salient enough to generate anxietiesamong potential homebuyers, and whether there is sufficient confidence in suchexpectations to motivate action.

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