Was there a U.S. house price bubble? An econometric analysis using national and regional panel data

The purpose of this study is to examine the existence of a U.S. house price bubble. Specifically, we focus on the time series statistical relationship between real U.S. and regional house prices and a number of fundamental economic variables related to house prices using quarterly data from the first quarter of 1975 through the second-quarter of 2005, the approximate end of the recent house price rise. We find that U.S. house prices and our fundamental economic variables are unit root variables that are not cointegrated, even after allowing for structural breaks. Thus our analysis confirms the existence of an interesting and important anomaly suggested by some prior research on this period. We then discuss the implications of our results for the common practice of using error correction models of house prices, and for the current policy debate regarding the causes of the recent U.S. housing market collapse.