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Root Causes of the Housing Bubble

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Econophysics Approaches to Large-Scale Business Data and Financial Crisis

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Abstract

In this chapter we investigate root causes of the recent US housing bubble which has been caused a serious downturn in US economic growth since autumn of 2008. We propose a simple model of housing markets in order to indicate the possible determinants of recent housing prices. Utilizing the model, we verify a number of hypotheses which have been proposed in the recent literature on the housing bubbles. We suggest that the main causes of the housing bubble from 2000 to 2006 are (1) non-elastic housing supply in the metropolitan areas, and (2) declines in the mortgage loan rate and the housing premium by the massive mortgage credit expansion. We also suggest that these factors were strongly influenced by policies that governments and the Federal Reserve Board performed.

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Notes

  1. 1.

    They implicitly assume low-cost arbitrage between owning and renting and the supply of housing were perfectly elastic. In reality, mortgage origination fees, broker commissions and moving costs make it expensive to switch back and forth between owning and renting. As we show below, the housing supply is often regulated by the local governments.

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Authors and Affiliations

  1. International Christian University, 3-10-2 Osawa, Mitaka, Tokyo, 181-8585, Japan

    Taisei Kaizoji

Authors
  1. Taisei Kaizoji
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Correspondence to Taisei Kaizoji .

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Editors and Affiliations

  1. Department of Computational, Intelligence and Systems Science, Interdisciplinary Graduate School of Science and Engineering, Tokyo Institute of Technology, 4259 Nagatsuta, Midori-ku, Yokohama, 226-8502, Japan

    Misako Takayasu (Associate Professor) (Associate Professor)

  2. Research Center for Price Dynamics and Institute of Economic Research, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo, 186-8603, Japan

    Tsutomu Watanabe (Professor) (Professor)

  3. Fundamental Research Group, Sony Computer Science Laboratories, 3-14-13 Higashigotanda, Shinagawa-ku, Tokyo, 141-0022, Japan

    Hideki Takayasu (Senior Researcher) (Senior Researcher)

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Kaizoji, T. (2010). Root Causes of the Housing Bubble. In: Takayasu, M., Watanabe, T., Takayasu, H. (eds) Econophysics Approaches to Large-Scale Business Data and Financial Crisis. Springer, Tokyo. https://doi.org/10.1007/978-4-431-53853-0_8

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