Chapter 8

What Goes Up Must Come Down

The Housing Bubble

The strong rise in home prices since the mid-1990s has raised concerns over a possible bubble in the housing market… [but]market fundamentals are strong enough to explain the recent path of home prices… no bubble exists.

McCarthy and Peach1

Just a few days after the Federal Reserve Bank of New York said it found little evidence of a nationwide housing bubble, HSBC said a bubble exists and prices are likely to deflate gradually over a few years.


Bulls, bears, booms, busts, and bubbles. Economists use such wonderfully vivid words to describe economic phenomena. The “bursting of the housing bubble” is another dramatic phrase that portrays swiftly deflating housing prices and the ...

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