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

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  • Karl E. Case
  • Robert J. Shiller
  • Anne Thompson

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18400.

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Date of creation: Sep 2012
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Handle: RePEc:nbr:nberwo:18400

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  1. Brueckner, Jan K., 1981. "A dynamic model of housing production," Journal of Urban Economics, Elsevier, vol. 10(1), pages 1-14, July.
  2. Jonathan McCarthy & Richard W. Peach, 2004. "Are home prices the next "bubble"?," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Dec, pages 1-17.
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Cited by:
  1. Giovanni di Iasio & Mario Quagliariello, 2013. "Incentives through the cycle: microfounded macroprudential regulation," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 894, Bank of Italy, Economic Research and International Relations Area.
  2. Paolo Gelain & Kevin J. Lansing, 2013. "House prices, expectations, and time-varying fundamentals," Working Paper Series, Federal Reserve Bank of San Francisco 2013-03, Federal Reserve Bank of San Francisco.
  3. Aizenman, Joshua & Jinjarak, Yothin, 2013. "Real Estate Valuation, Current Account, and Credit Growth Patterns Before and After the 2008–2009 Crisis," ADBI Working Papers, Asian Development Bank Institute 429, Asian Development Bank Institute.
  4. John C. Williams, 2013. "Bubbles tomorrow and bubbles yesterday, but never bubbles today?," Speech, Federal Reserve Bank of San Francisco 122, Federal Reserve Bank of San Francisco.
  5. Pei Kuang, 2014. "A Model of Housing and Credit Cycles with Imperfect Market Knowledge," Discussion Papers, Department of Economics, University of Birmingham 14-07, Department of Economics, University of Birmingham.

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