Housing market bubbles

When discussing asset-price bubbles, one is greatly tempted to talk at length about business cycle theory (-ies) in general, RE cycles in particular, or the relationship between business and RE cycles. The topic of cycles, of asset-price bubbles and bursts and their aftermath, is wonderful and exciting because it lies at the heart of the operation and history of capitalism.1

Reasons of space, unfortunately, preclude such a course. Some very introductory remarks should therefore suffice, with most of the subsequent discussion being focused on the 2006 US housing market bubble, its burst in 2007-08, and a stylized model of housing market volatility informed by that experience as well as by the recent related experiences of Ireland and Spain. The UK also began to experience house-price deflation as of 2008, but that was much milder than in the USA, Ireland, or Spain, even though the UKmarket, as in most other countries, was still bearish by 2012 (Allen, 2011).