Is There a Real Estate Bubble?

  • October 20, 2005
  • • Written by: Damir Tokic, Ph.D. 

Fall 2005, Vol 30, No 1

Abstract: This paper discusses whether these is a housing bubble or not, and what will be the consequences on economy if such a bubble exists. Using a simple exercise, we conclude that there is a housing bubble, inflated by an excess speculation by investors and homebuilders. The resulting demand-supply imbalance will eventually cause the bust. However, we are not sure about the timing of such a boom-to-bust scenario. We do recommend market participants to closely follow the interest rates, which if increased, would potentially trigger a housing bubble bust.