The 2000s Housing Cycle with 2020 Hindsight: A Neo-Kindlebergerian View

81 Pages Posted: 9 Aug 2021 Last revised: 18 Nov 2021

See all articles by Gabriel Chodorow-Reich

Gabriel Chodorow-Reich

Harvard University Department of Economics

Adam M. Guren

Boston University - Department of Economics

Timothy McQuade

Stanford University

Multiple version iconThere are 2 versions of this paper

Date Written: August 2021


With “2020 hindsight,” the 2000s housing cycle is not a boom-bust but rather a boom- bust-rebound at both the national level and across cities. We argue this pattern reflects a larger role for fundamentally-rooted explanations than previously thought. We construct a city-level long-run fundamental using a spatial equilibrium regression framework in which house prices are determined by local income, amenities, and supply. The fundamental predicts not only 1997-2019 price and rent growth but also the amplitude of the boom-bust-rebound and foreclosures. This evidence motivates our neo-Kindlebergerian model, in which an improvement in fundamentals triggers a boom-bust-rebound. Agents learn about the fundamentals by observing “dividends” but become over-optimistic due to diagnostic expectations. A bust ensues when over-optimistic beliefs start to correct, exacerbated by a price-foreclosure spiral that drives prices below their long-run level. The rebound follows as prices converge to a path commensurate with higher fundamental growth. The estimated model explains the boom-bust-rebound with a single fundamental shock and accounts quantitatively for cross-city patterns in the dynamics of prices and foreclosures.

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Suggested Citation

Chodorow-Reich, Gabriel and Guren, Adam M. and McQuade, Timothy, The 2000s Housing Cycle with 2020 Hindsight: A Neo-Kindlebergerian View (August 2021). NBER Working Paper No. w29140, Available at SSRN: or

Gabriel Chodorow-Reich (Contact Author)

Harvard University Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
6174963226 (Phone)
6174963226 (Fax)


Adam M. Guren

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States


Timothy McQuade

Stanford University ( email )

Stanford, CA 94305
United States

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