The main features of boom-bust cycles in housing markets are by now all too familiar.
During booms, conditions such as lax lending standards and low interest rates help drive up house prices and with them mortgage debt.
When the bust arrives, over-indebted households find themselves underwater on their mortgages— owing more than their homes are worth.
Feeling the pinch of reduced wealth and access to credit, households, in turn, rein in consumption. At the same time, lower house prices cause investment in new houses to tumble.
Together, these forces significantly depress […]