Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/310390 
Year of Publication: 
2024
Series/Report no.: 
Working Paper No. 13/2023
Publisher: 
Norges Bank, Oslo
Abstract: 
We study scar formation and persistence after a house price bubble has burst using data on 3,089 US counties and county equivalents over the period 1980q1-2019q4. We date house price booms and busts for each county, and identify periods with explosive house price developments. Applying a sharp bubble definition to the data, we observe the regularities that the probability of a housing bubble increases when housing supply is inelastic and when access to credit is easy. We differentiate between non-bubble price accelerations and bubble price accelerations, and demonstrate that there is scar formation after the latter. Conditioning on a set of factors, including county-fixed effects, our results show that house price reductions are larger and macro aggregate responses are stronger in areas in which there was a house price bubble. In particular, areas that experience a housing bubble burst are areas in which, subsequently, there are stronger and longer increases in unemployment and decreases in household income.
Subjects: 
Housing busts
Local housing cycles
Rational bubbles
Regional heterogeneity
JEL: 
E32
E44
R30
C33
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-298-0
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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