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Home Price Expectations and Spending: Evidence from a Field Experiment

Author

Listed:
  • Felix Chopra

    (University of Copenhagen, CEBI)

  • Christopher Roth

    (University of Cologne, ECONtribute, MPI for Collective Goods Bonn,)

  • Johannes Wohlfart

    (University of Copenhagen, CEBI)

Abstract

How do households adjust their spending behavior in response to changes in home price expectations? We conduct a field experiment with a sample of Americans that links survey data on home price expectations to actual spending behavior as measured in a rich home-scanner dataset. In the experiment we exogenously vary households' home price expectations by providing them with different expert forecasts. Homeowners do not adjust their spending in response to exogenously higher home price expectations, consistent with wealth effects and higher expected housing costs offsetting each other. However, renters reduce their spending in response to an increase in home price expectations. We provide evidence that the effects on renters operate through an increase in expected rental costs and higher expected costs of a future home that many renters intend to buy. Our evidence has implications for the role of asset price expectations in business cycle dynamics and consumption inequality.

Suggested Citation

  • Felix Chopra & Christopher Roth & Johannes Wohlfart, 2023. "Home Price Expectations and Spending: Evidence from a Field Experiment," CEBI working paper series 23-03, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    • Handle: RePEc:kud:kucebi:2303
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    Cited by:

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    2. Sarah Kiesl-Reiter & Melanie Lührmann & Jonathan Shaw & Joachim Winter, 2024. "The Formation of Subjective House Price Expectations," Rationality and Competition Discussion Paper Series 491, CRC TRR 190 Rationality and Competition.

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    More about this item

    Keywords

    Consumption; Expectations; Home prices; Homeowner; Information; Renter;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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