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

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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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  • Karl E. Case & Robert J. Shiller & Anne K. Thompson, 2012. "What Have They Been Thinking? Home Buyer Behavior in Hot and Cold Markets," Cowles Foundation Discussion Papers 1876, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:1876
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    1. 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.
    2. Brueckner, Jan K., 1981. "A dynamic model of housing production," Journal of Urban Economics, Elsevier, vol. 10(1), pages 1-14, July.
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    Cited by:

    1. Kuang, Pei, 2014. "A model of housing and credit cycles with imperfect market knowledge," European Economic Review, Elsevier, vol. 70(C), pages 419-437.
    2. Gelain, Paolo & Lansing, Kevin J., 2014. "House prices, expectations, and time-varying fundamentals," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 3-25.
    3. Gete, Pedro, 2015. "Housing demands, savings gluts and current account dynamics," Globalization and Monetary Policy Institute Working Paper 221, Federal Reserve Bank of Dallas, revised 01 Aug 2015.
    4. repec:eee:jfinec:v:126:y:2017:i:1:p:147-170 is not listed on IDEAS
    5. John C. Williams, 2013. "Bubbles tomorrow and bubbles yesterday, but never bubbles today?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sept23.
    6. Aizenman, Joshua & Jinjarak, Yothin, 2014. "Real estate valuation, current account and credit growth patterns, before and after the 2008–9 crisis," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 249-270.
    7. Edward L. Glaeser & Charles G. Nathanson, 2014. "Housing Bubbles," NBER Working Papers 20426, National Bureau of Economic Research, Inc.
    8. Anundsen, André Kallåk & Heebøll, Christian, 2016. "Supply restrictions, subprime lending and regional US house prices," Journal of Housing Economics, Elsevier, vol. 31(C), pages 54-72.
    9. M. Hashem Pesaran & Ida Johnsson, 2016. "Double-question Survey Measures for the Analysis of Financial Bubbles and Crashes," CESifo Working Paper Series 6272, CESifo Group Munich.
    10. Edward Glaeser & Wei Huang & Yueran Ma & Andrei Shleifer, 2017. "A Real Estate Boom with Chinese Characteristics," Journal of Economic Perspectives, American Economic Association, vol. 31(1), pages 93-116, Winter.
    11. Weinhardt, Felix, 2014. "Social housing, neighborhood quality and student performance," Journal of Urban Economics, Elsevier, vol. 82(C), pages 12-31.
    12. Askitas, Nikos, 2015. "Trend-Spotting in the Housing Market," IZA Discussion Papers 9427, Institute for the Study of Labor (IZA).
    13. repec:eee:quaeco:v:64:y:2017:i:c:p:171-182 is not listed on IDEAS
    14. Cortés, Kristle & Duchin, Ran & Sosyura, Denis, 2016. "Clouded judgment: The role of sentiment in credit origination," Journal of Financial Economics, Elsevier, vol. 121(2), pages 392-413.
    15. di Iasio, Giovanni & Quagliariello, Mario, 2011. "Incentives through the cycle: microfounded macroprudential regulation," MPRA Paper 30769, University Library of Munich, Germany.
    16. Joshua B. Miller & Adam Sanjurjo, 2014. "A Cold Shower for the Hot Hand Fallacy," Working Papers 518, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    17. Carlos J. Perez & Manuel Santos, 2017. "On the Dynamics of Speculation in a Model of Bubbles and Manias," Working Papers 2017-02, University of Miami, Department of Economics.
    18. John V. Duca & Lilit Popoyan & Susan M. Wachter, 2016. "Real Estate and the Great Crisis: Lessons for Macro-Prudential Policy," LEM Papers Series 2016/30, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    19. Bree Lang & Ellen Hurst, 2014. "The Effect of Down Payment Assistance on Mortgage Choice," The Journal of Real Estate Finance and Economics, Springer, vol. 49(3), pages 329-351, October.
    20. Duca, John V. & Kumar, Anil, 2014. "Financial literacy and mortgage equity withdrawals," Journal of Urban Economics, Elsevier, vol. 80(C), pages 62-75.
    21. Glaeser, Edward L. & Nathanson, Charles G., 2015. "Housing Bubbles," Handbook of Regional and Urban Economics, Elsevier.
    22. Donald Haurin & Chao Ma & Stephanie Moulton & Maximilian Schmeiser & Jason Seligman & Wei Shi, 2016. "Spatial Variation in Reverse Mortgages Usage: House Price Dynamics and Consumer Selection," The Journal of Real Estate Finance and Economics, Springer, vol. 53(3), pages 392-417, October.
    23. Gazzani, Andrea, 2016. "News and noise in the housing market," Working Paper Series 1933, European Central Bank.
    24. Aizenman, Joshua & Jinjarak, Yothin, 2013. "Real Estate Valuation, Current Account, and Credit Growth Patterns Before and After the 2008–2009 Crisis," ADBI Working Papers 429, Asian Development Bank Institute.

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    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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