How do households adjust house price expectations in an era of high inflation? Experimental evidence

To understand how households adjust house price expectations in a period of high inflation, we implement a survey-based randomized information treatment. After eliciting respondents' priors about past and future local house price changes, we provide a random subset of them with factual information about past changes, and then re-elicit expectations. We find that treated respondents, on average, revise their expectations in the direction of the gap between revealed past house price growth and their perceptions. The extrapolation is heterogeneous across households' demographic and economic conditions, while no effect of local housing conditions is found. We show that the updating behavior is asymmetric, depending on whether the information received is higher or lower than the perceived past price growth, and non-linear, relying on the difference between the treatment and the perceived past price changes. Households struggling with their finances extrapolate more when they realize past house price growth is lower than they thought.