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Understanding Booms and Busts in Housing Markets

Author Info

Listed author(s):
  • Burnside, Craig
  • Eichenbaum, Martin
  • Rebelo, Sérgio

Abstract

Some booms in housing prices are followed by busts. Others are not. In either case it is difficult to find observable fundamentals that are correlated with price movements. We develop a model that is consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of "social dynamics". Agents meet randomly and those with tighter priors are more likely to convert other agents to their beliefs. The model generates a "fad": the fraction of the population with a particular view rises and then falls. Depending on which agent is correct about fundamentals, these fads generate boom-busts or protracted booms.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8232.

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Date of creation: Feb 2011
Handle: RePEc:cpr:ceprdp:8232
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Keywords: housing prices; real estate;

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Find related papers by JEL classification:
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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  1. Behzad T. Diba & Herschel I. Grossman, 1987. "On the Inception of Rational Bubbles," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 697-700.
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  7. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
  8. Martin Schneider & Monika Piazzesi, 2009. "Momentum traders in a search model of the housing market," 2009 Meeting Papers 1266, Society for Economic Dynamics.
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  12. Yongqiang Chu, 2014. "Credit constraints, inelastic supply, and the housing boom," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 52-69, January.
  13. John M. Quigley & Steven Raphael, 2005. "Regulation and the High Cost of Housing in California," American Economic Review, American Economic Association, vol. 95(2), pages 323-328, May.
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  18. repec:hrv:faseco:33078973 is not listed on IDEAS
  19. Cormac O Grada & Morgan Kelly, 2000. "Market Contagion: Evidence from the Panics of 1854 and 1857," American Economic Review, American Economic Association, vol. 90(5), pages 1110-1124, December.
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  1. Canadian Macro Study Group
  2. Understanding Booms and Busts in Housing Markets (JPE 2016) in ReplicationWiki

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