Sunday, June 12, 2011

No Bubble #2

An old paper from Greg Mankiw and David Weil, "The Baby Boom, The Baby Bust, and the Housing Market" (1989) offers one possible reason for the transitions we've seen in housing prices: an anticipated baby boom.  The paper offers nice depictions in dynamics that Corrections wishes were present in more papers.  If the boom is transitory, we have supply and demand temporarily moving and falling back down along the same supply curve (click to enlarge)
Or, offers a graph that might be informative about our current housing issues: what would happen to housing prices in a forward-looking and a naïve world under a baby boom (click to enlarge):
Look familiar? (In shape, not in magnitude!)  Almost like a partially-anticipated, rational boom that dissipated when the state of the world turned out to be different.

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