Consider a stylized housing market where, due to buyer expectations, prices tend to settle at one of two stable levels: a 'low' equilibrium at $200,000 or a 'high' equilibrium at $500,000. There is a critical price threshold of $300,000. If the average price rises above this threshold, it triggers a wave of speculative buying that pushes prices toward the high equilibrium. If the price is below this threshold, demand cools and prices tend to fall back toward the low equilibrium. The market is currently stable at the low equilibrium of $200,000. A sudden, large-scale infrastructure project is announced for the area, causing a one-time price shock that immediately raises the average house price to $325,000. What is the most likely long-term outcome for the average price in this market?

A housing market is in a stable, low-price equilibrium. A sudden, large positive shock occurs, causing an initial price jump that pushes prices above a critical threshold. Arrange the following events to trace the logical sequence of a self-reinforcing housing boom that follows this shock.

Explaining a Failed Housing Boom

Analyzing a Market's Response to a Price Shock