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Another housing bubble? a review of historical indicators and analysis of the current state of the U.S. residential real estate market
Harnaga, Brandon J.
Harnaga, Brandon J.
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Sheridan, Michael
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2021-05
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Harnaga_Honors.pdf
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The purpose of this paper is to investigate the current state of the United States residential real estate market along with its historical indicators. This study will address questions including: why the housing market is important, what housing bubbles are, and how today’s asset-price inflation is a cause for concern. Moreover, subsequent sections will attempt to address these questions by analyzing the history of gathering market data, discovering the “fundamental values” that influence home prices, and identifying which of those variables were responsible for the past housing bubble. Once these variables were identified, numerous multiple linear regression models were calculated between the periods 1994—2004, 1994—2007, 2008—2018, and 2008—2021 to determine if the run-up period to a potential bubble causes these fundamental values to become less influential in determining home prices. The results of the model indicate that these values were able to explain slightly less of the total variance in home prices during the buildup of a housing bubble. Although further research will need to be conducted, the results divulge parallels between the last housing crisis and today. With the deviations between home prices and their fundamental values greater today relative to a decade prior, this development could signify the possibility of another housing bubble.