Bubbles in metropolitan housing markets across the United States

This paper tests for the existence of speculative bubbles in the U.S. housing market using data from 46 diverse Metropolitan Statistical Areas (MSAs) for a 32-year period from 1970 to 2002. Results appear mixed and do not support the existence of bubbles when MSAs are looked at individually. There appear to be other critical factors impacting housing price movements at the local level that are not captured. In examining all 46 MSAs combined a modest bubble was found to exist. The empirical results of the model supports the hypothesis of the existence of housing bubbles when similar MSAs are combined. When the MSAs are divided into geographic regions, there is evidence of bubbles in the Central, Southern and Western Regions but none in the Eastern Region. When the MSAs are grouped into categories of "high density" vs. "low density", "coastal" vs. "inland", there is some evidence of bubbles.