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AbstractPurpose -This paper aims to examine the anatomy of a real estate bubble. In the process, the paper identifies three phases of the market's evolution: flips, flops and foreclosures. An examination of the Las Vegas real estate market illustrates the three phases. Design/methodology/approach -The paper examines transaction data from the metropolitan Las Vegas area (Clark County) from 1994 to 2009. The first part of the analysis identifies the three phases of the bubble and is descriptive in nature. This is followed by more formal tests of Granger causality. Findings -In the early part of the sample, a large percentage of transactions are speculative or "flips" causing prices to rapidly increase. Eventually, flipping loses its profitability and over the last three years, there is an increasing number of foreclosures leading to falling prices. The descriptive analysis of the Las Vegas market is augmented with causality tests which show that prices were the driving force behind all three phases in the market's evolution.Research limitations/implications -Future research might focus on underlying structural inter-temporal relationships to augment the Granger causality tests. Practical implications -Analysis shows that price is the driving force behind a bubble and that loan modification programs alone will not solve the current housing crisis. Social implications -Government entities might expand neighborhood stabilization programs to affect both demand and supply of homes. Moreover, it might be prudent to include information related to flipping on multiple listing service agreements. Additionally, local governments should be consistent in their record keeping. Originality/value -To the best of the authors' knowledge, this is the first paper to examine the housing bubble using an extensive set of transaction data.
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