An Examination of Housing Price Appreciation in California and the Impact of Alternative Mortgage Instruments

Abstract

The median price of single-family detached homes in California jumped from $241,350 in 2000 to $524,020 in 2005. This paper studies the phenomenal housing price appreciation in the state by examining the impact of the increasing popularity of alternative mortgage products on the changes in housing values. Using macroeconomic variables and characteristics of mortgage products, this study investigates the driving forces behind this booming housing market and finds that the extensive use of alternative mortgage products was one of the major factors causing the unprecedented pace of housing value appreciation in California.