Monday, January 12, 2009

One way to define bubble cities

I gave a paper (with Chris Redfearn and Stuart Gabriel) at ASSA last week on how interest rates and income get capitalized into house prices. Our preliminary results show that the following cities had house price elasticities with respect to income of less than one before 1997, but greater than one thereafter:

Albuquerque
Allentown
Amarillo
Appleton
Atlanta
Austin
Baltimore
Barnstable Town
Baton Rouge
Beaumont
Binghamton
Bismarck
Bloomington
Boise City
Boulder
Bridgeport
Canton
Cape Coral
Cedar Rapids
Charleston-SC
Charlotte
Chattanooga
Chicago
Cincinnati
Columbia
Columbus
Corpus Christi
Cumberland
Dallas
Davenport
Deltona
Denver
Des Moines
Detroit
Durham
Elmira
El Paso
Erie
Eugene
Fargo
Farmington
Gainesville
Glens Falls
Grand Rapids
Green Bay
Greensboro
Greenville
Gulfport
Hagerstown
Houston
Jackson
Jacksonville
Kansas City
Kennewick
Kingston
Knoxville
Lansing
Las Vegas
Lincoln
Little Rock
Louisville
Madison
Memphis
Miami
Milwaukee
Minneapolis
Mobile
Norwich
Ocala
Orlando
Palm Bay
Pensacola
Philadelphia
Phoenix
Pittsfield
Portland-OR
Raleigh
Reno
Richmond
Rockford
Salem
Salt Lake City
San Antonio
Sarasota
Shreveport
Sioux Falls
Spartanburg
Spokane
Springfield-MO
Syracuse
Tallahassee
Tampa
Toledo
Topeka
Tucson
Virginia Beach
Washington
Youngstown

This may be one way to define bubble cities. In cities such as Boston and Los Angeles (where the elasticity is always greater than one), large price swings might reflect the fact that the short run supply curve is strongly inelastic.

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