Housing price bubbles - a tale based on housing price booms and busts - BIS Papers No 21, part 4, April 2005

At the current juncture, the focus has shifted from equity price to housing price bubbles, given striking recent price increases in this asset class in a number of industrial countries (IMF (2003)). However, large price increases – which will be referred to as booms – are only a sufficient but not necessary conditions for bubbles. Historically, many episodes of large asset price increases did not end in crashes – or busts, as they are frequently referred to. Similarly, some of the largest asset price busts were not preceded by booms. The purpose of this paper is to establish the main empirical regularities of housing price booms and busts in industrial countries over the last 30 years – the focus on booms and busts obviates the need to measure or explain “bubbles”, which, as noted below, remains highly controversial. In particular, the paper will address the following questions: