Current Issues in Economics and Finance

Productivity Swings and Housing Prices

July 2009Volume 15, Number 3
JEL classification: E22, E32, O41, O51

Author: James A. Kahn

The housing boom and bust of the last decade, often attributed to “bubbles” and credit market irregularities, may owe much to shifts in economic fundamentals. A resurgence in productivity that began in the mid-1990s contributed to a sense of optimism about future income that likely encouraged many consumers to pay high prices for housing. The optimism continued until 2007, when accumulating evidence of a slowdown in productivity helped dash expectations of further income growth and stifle the boom in residential real estate.

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