The internet is a wonderful thing in the department of making a permanent record. While looking for some data for another post, I came across this gem, from a 2007 article excerpting a chapter in a forthcoming book, “The Economics of Housing Bubbles,” in America’s Housing Crisis: A Case of Government Failure, edited by Benjamin Powell and Randall Holcombe:

There are three basic views of bubbles that are held by economists. The dominant view among modern mainstream economists, including the Chicago school and proponents of Supply-Side economics, is to deny the existence of bubbles and to declare that what is thought to be “bubbles” is really the result of “real” factors....

Until very recently, most people agreed with the majority of economists, that there is no such thing as a housing bubble – housing prices, they said, “never go down.” Although there is much diversity in the mainstream camp, it is well illustrated by two economists from the Federal Reserve Bank of New York who recently examined concerns about the existence of a speculative bubble in the U.S. housing market. While McCarty and Peach did find that a housing bubble could have a severe impact on the economy – if it existed and were to burst – they ultimately concluded that such fears were unfounded:

Our main conclusion is that the most widely cited evidence of a bubble is not persuasive because it fails to account for developments in the housing market over the past decade. In particular, significant declines in nominal mortgage interest rates and demographic forces have supported housing demand, home construction, and home values during this period.

(2004, 2)

Furthermore they found “no basis for concern” for any severe drop in housing prices. In the past when the U.S. goes into recession or has experienced periods of high nominal interest rates, they found that any price declines have been “moderate” and that significant declines can only happen regionally so that they would not have “devastating effects on the national economy.”

Oh, my. I'll bet they don't tout that article on their resumes!