Modeling the U.S. housing bubble: an econometric analysis

The US economy experienced excessive demand for housing for over a decade, causing a housing boom. Consumers went on a spending spree driven by higher and higher, real and perceived home equity values, as well as equity market increases. In the US market, “bigger is better” or “as much as one can afford” became the mentality of home buyers. In addition, consumers were driven to buy houses now to avoid future higher prices. Interest rates were generally held to historic lows from 1990 to about 2007. For a long time, the Federal Reserve was praised for helping the financial markets sustain their roles in the housing markets. Since the housing market crash, beginning about 2006, the Federal Reserve has been blamed for the housing crisis. This research will examine the housing market boom to determine what factors led to this economic situation.