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Momentum traders in the housing market: survey evidence and a search model

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Author Info
Monika Piazzesi
Martin Schneider

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Abstract

This paper studies household beliefs during the recent US housing boom. To characterize the heterogeneity in households’ views about housing and the economy, we perform a cluster analysis on survey responses at different stages of the boom. The estimation always finds a small cluster of households who believe it is a good time to buy a house because house prices will rise further. The size of this “momentum” cluster doubled towards the end of the boom. We also provide a simple search model of the housing market to show how a small number of optimistic investors can have a large effect on prices without buying a large share of the housing stock. ; This paper is an extension of Monika Piazzesi's and Martin Schneider's work while they were in the Research Department of the Federal Reserve Bank of Minneapolis.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 422.

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Date of creation: 2009
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Handle: RePEc:fip:fedmsr:422

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Related research
Keywords: Housing ; Inflation (Finance) ; Interest rates;

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  1. Miller, Edward M, 1977. "Risk, Uncertainty, and Divergence of Opinion," Journal of Finance, American Finance Association, vol. 32(4), pages 1151-68, September. [Downloadable!] (restricted)
  2. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January. [Downloadable!] (restricted)
  3. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-92, December. [Downloadable!] (restricted)
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