In other words, it wasn’t much of a real estate bubble

We reevaluate the 2000s housing cycle from the perspective of 2020. National real house prices grew steadily between 2012 and 2019, with the largest price growth in the same areas that had the largest booms between 1997 and 2006 and busts between 2006 and 2012. As a result, the areas that had the largest booms also had higher long-run price growth over the entire 1997-2019 period. With “2020 hindsight,” the 2000s housing cycle is not a boom-bust but rather a boom-bust-rebound.

We argue that this pattern reflects a larger role for fundamentals than previously thought.

As I see it, there was a “negative bubble” circa 2008-2009, based on panic about the shadow banking system that was at the time reasonable but also turned out to be wrong.  You can argue however that there was a small bubble at the time (see Figure 1 in the paper, and compare that say to the Japanese stock market), or a bubble in a few particular regions.  And do you know who got this right at the time?  Our own Alex T., perhaps he will tell you the story in more detail.

The authors continue:

A few papers ascribe a role to fundamental factors in the 2000s cycle as we do. Writing near the peak of the boom, Himmelberg et al. (2005) found “little evidence of a housing bubble” because of fundamental growth, undervaluation in the 1990s, and low interest rates. Ferreira and Gyourko (2018) estimate the timing of the boom across cities and show that the beginning of the boom was “fundamentally based to a significant extent” but that fundamentals revert in roughly three years. We similarly conclude that fundamentals played a significant role in the boom, but based on different methods that focus on long-term fundamentals rather than short-term income growth. More recently, Howard and Liebersohn (2021) propose an explanation for housing cycles based on divergence in regional income growth, in which fluctuations in fundamentals fully explain the cycle, and Schubert (2021) identifies spillovers of fundamentals across cities via migration networks.

You are not going to hear many mea culpas on this one, but a quick look at today’s housing market makes it pretty clear who was right and who was wrong.

Here is the NBER working paper from Gabriel Chodorow-Reich, Adam M. Guren, and Timothy J. McQuade.