When did psychology and greed become an issue in this boom period? Sometime between the 2003 and 2004 high selling seasons (late spring, early summer of each year). And why? Two (maybe three) factors made the boom into a bubble:
(1) House appreciation had been so fast that people started to think “I can’t lose no matter what I pay for RE”.
(2) Proliferation of exotic loans
(3) Mortgage interest rates bottomed in June 2003
Factor (2) above is not measurable, but (1) is. What we need for (1) is not only prices, but the change in prices, either as a difference or as a growth (percentage) rate. The same for (3), you need an indicator of how fast interest rates were dropping, not just their levels, but also the speed of change.
Finally, there’s no way a statistical model can capture the irrational aspect of bubbles and manias, so even if the % change in prices and interest rates turn out to be significant, you may still have a gap between actual and fitted for 2004-2006. You may want to try including a binary (dummy) variable for the bubble years (say, 2003Q2 through 2006Q1) and also its interaction with some other variables, especially % changes in house prices and interest rates.
Powayseller’s comment about missing the supply side is completely off. You are tracking the history of housing prices: each data point is already given by the market (both supply and demand, and any imbalance therein).
