Chicago Fed's Economic Perspectives, First Q 2007

In 'Bubble, bubble, toil, and trouble' Cabray Haines and Richard Rosen note that the rapid rise of real estate prices in recent years has led to fears of a housing price bubble. But to determine whether there has been a bubble-and whether the bubble is bursting-one needs to know what home prices "should" be.

The authors estimate a simple model of home prices and find that prices were, on average, above their predicted levels during 2000-06. However, this result does not hold true uniformly across

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