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

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.yale.edu/sites/default/files/files/pub/d18/d1876.pdf
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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
Date of revision:
Handle: RePEc:cwl:cwldpp:1876
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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Markus K. Brunnermeier & Christian Julliard, 2006. "Money Illusion and Housing Frenzies," NBER Working Papers 12810, National Bureau of Economic Research, Inc.
  2. Jonathan McCarthy & Richard Peach, 2004. "Are home prices the next "bubble"?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-17.
  3. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1449-1496.
  4. Yuliya Demyanyk & Otto Van Hemert, 2009. "Understanding the subprime mortgage crisis," Proceedings, Federal Reserve Bank of San Francisco, issue Jan.
  5. Brueckner, Jan K., 1981. "A dynamic model of housing production," Journal of Urban Economics, Elsevier, vol. 10(1), pages 1-14, July.
  6. Mathis, Jérôme & McAndrews, James & Rochet, Jean-Charles, 2009. "Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 657-674, July.
  7. Gorton, Gary B., 2010. "Slapped by the Invisible Hand: The Panic of 2007," OUP Catalogue, Oxford University Press, number 9780199734153, December.
  8. Fernando Ferreira & Joseph Gyourko, 2011. "Anatomy of the Beginning of the Housing Boom: U.S. Neighborhoods and Metropolitan Areas, 1993-2009," NBER Working Papers 17374, National Bureau of Economic Research, Inc.
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