Analyzing the role of monetary policy among other factors in fuelling and stabilizing the U S housing boom

Abstract

The recent trends in the U.S. housing market have caused many to believe that there has been a bubble in housing prices which is now about to bust. There is a view that the rate of appreciation of home prices has been irrational and is not dependent on solid economic factors. This is believed to be happening because of some form of excitement in the market. According to advocates of the bubble notion, when that excitement will fade, there will be a sharp fall in prices and the bubble will burst. Hence we aim to analyze whether such a bubble actually exists by studying the various indicators and the exogenous factors. We move on to analyze the various housing market cycles in US in the past and the reasons why the so called booms and busts took place. Comparing those cycles with current cycles on the basis of various economic indicators as well as exogenous factors involved, we attempt to establish the presence of another housing cycle which is showing signs of decline. Finally, we prove our findings with the index developed on the basis of our research. This will also show the role of Fed and its importance in controlling and monitoring the housing market. This submission discusses key sources of data, both government and private, that provide useful information on the state of the housing market. It gives a brief description of each of the main publicly available data sources and their uses and limitations. The data has been collected from various resources especially from the US Government sources and the Fed’s websites.