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What Have They Been Thinking? Home Buyer Behavior in Hot and Cold Markets

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    Abstract

    Questionnaire surveys we have undertaken in 1988 and annually 2003–2012 of recent homebuyers in each of four U.S. cities shed light on their expectations and reasons for buying and selling during the recent housing boom and subsequent collapse, and on the reasons for the housing crisis that initiated the current financial malaise. We find that homebuyers were generally well informed, and that their short-run expectations if anything underreacted to the year-to-year change in actual home prices. More of the root causes of the bubble can be seen in their long-term, ten-year, home price expectations, which reached abnormal levels relative to the mortgage rate at the peak of the boom and declined sharply since. The downward turning point around 2005 of the long boom that preceded the crisis was associated with changing public understanding of speculative bubbles.

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    File URL: http://cowles.econ.yale.edu/P/cd/d18b/d1876.pdf
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    Bibliographic Info

    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1876.

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    Length: 40 pages
    Date of creation: Sep 2012
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    Handle: RePEc:cwl:cwldpp:1876

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    1. Jonathan McCarthy & Richard W. Peach, 2004. "Are home prices the next "bubble"?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-17.
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    Cited by:
    1. di Iasio, Giovanni & Quagliariello, Mario, 2011. "Incentives through the cycle: microfounded macroprudential regulation," MPRA Paper 30769, University Library of Munich, Germany.
    2. Aizenman, Joshua & Jinjarak, Yothin, 2013. "Real Estate Valuation, Current Account, and Credit Growth Patterns Before and After the 2008–2009 Crisis," ADBI Working Papers 429, Asian Development Bank Institute.

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