by Karl E. Case and Robert J. Shiller
March/April 1994

The 1980s and 1990s have been turbulent times in the U.S. market for single-family homes. For most of the previous two decades, housing prices across states and metropolitan areas moved together and increased slowly in real terms while regional differences generally remained small. The 1980s and 1990s, in contrast, have seen increased price volatility and sharp differences in price behavior across regions with substantial housing price booms in some regions and major price declines in others.

These boom-bust cycles had serious consequences for regional economies and national mortgage markets, with the most dramatic cycles occurring in New England and in California. This article compares the boom-bust cycles in single-family home prices in the Boston metropolitan area and in Los Angeles County from 1983 to 1993. The authors analyze the reasons for the similarities and differences between the two areas, both on the way up and on the way down, focusing on speculative behavior on the part of buyers and sellers and the differing behavior of price tiers over the course of the cycle.

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