Norges Bank

Working Paper

Housing bubble scars

Knut Are Aastveit, André Kallåk Anundsen, Bjørnar Karlsen Kivedal, and Erling Røed Larsen.
Working Paper


We study scar formation and persistence after a house price bubble has burst using data on 3,089 US counties and county equivalents over the period 1980q1–2019q4. We date house price booms and busts for each county, and identify periods with explosive house price developments. Applying a sharp bubble definition to the data, we observe the regularities that the probability of a housing bubble increases when housing supply is inelastic and when access to credit is easy. We differentiate between non-bubble price accelerations and bubble price accelerations, and demonstrate that there is scar formation after the latter. Conditioning on a set of factors, including county-fixed effects, our results show that house price reductions are larger and macro aggregate responses are stronger in areas in which there was a house price bubble. In particular, areas that experience a housing bubble burst are areas in which, subsequently, there are stronger and longer increases in unemployment and decreases in household income.

Norges Bank’s Working Papers present research projects and reports that are generally not in their final form. Other analyses by Norges Bank’s economists are also included in the series. The views and conclusions in these documents are those of the authors.

Norges Bank’s Working Papers can also be found in Norges Bank's publication archive, RepEc and BIS Central Bank Research Hub

ISSN 1502-8143 (online)

Published 17 October 2023 13:05
Published 17 October 2023 13:05