U.S. Housing Prices: Is There a Bubble? (CRS Report for Congress)
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| Release Date |
Sept. 7, 2006 |
| Report Number |
RL31918 |
| Report Type |
Report |
| Authors |
Marc Labonte, Government and Finance Division |
| Source Agency |
Congressional Research Service |
Summary:
If housing prices were being driven by a bubble, there is a chance that they couldsuddenly collapse, with adverse effects on the U.S. economy. Residentialinvestment, which rose 9% annually in 2003-2005, fell by 9.8% in 2006:2. It remainsto be seen if this decline is the beginning of a broader trend. A decline in housingwealth could also depress consumption, thereby depressing aggregate spending in theshort run. A sudden collapse in housing prices could also affect the health of thefinancial sector if financial institutions are not adequately safeguarded. All of thesepossibilities give Congress a cause for concern, yet effective policy responses to abubble are difficult. If house prices were to decline in some regions, it would not bethe first time this occurred. The report examines previous price declines inCalifornia, New England, and Texas. Encouragingly, those declines were muchsmaller than the prior increase in prices.
