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Understanding Booms and Busts in Housing Markets

Author Info

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

Abstract

Some booms in housing prices are followed by busts. Others are not. It is generally difficult to find observable fundamentals that are useful for predicting whether a boom will turn into a bust or not. We develop a model consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of “social dynamics.” Agents with tighter priors are more likely to convert others to their beliefs. Boom-bust episodes typically occur when skeptical agents happen to be correct. The booms that are not followed by busts typically occur when optimistic agents happen to be correct.

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File URL: http://www.nber.org/papers/w16734.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16734.

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Length:
Date of creation: Jan 2011
Publication status: published as Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2016. "Understanding Booms and Busts in Housing Markets," Journal of Political Economy, University of Chicago Press, vol. 124(4), pages 000 - 000.
Handle: RePEc:nbr:nberwo:16734
Note: AP EFG
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Find related papers by JEL classification:
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
  • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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  1. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
  2. Ravi Bansal & Amir Yaron, 2004. "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles," Journal of Finance, American Finance Association, vol. 59(4), pages 1481-1509, 08.
  3. Brent W. Ambrose & Piet Eichholtz & Thies Lindenthal, 2013. "House Prices and Fundamentals: 355 Years of Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 477-491, 03.
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  6. Atif Mian & Amir Sufi, 2010. "The Great Recession: Lessons from Microeconomic Data," American Economic Review, American Economic Association, vol. 100(2), pages 51-56, May.
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  11. Ortalo-Magne, Francois & Rady, Sven, 1999. "Boom in, bust out: Young households and the housing price cycle," European Economic Review, Elsevier, vol. 43(4-6), pages 755-766, April.
  12. 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.
  13. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
  14. Matthew Gentzkow & Jesse M. Shapiro, 2011. "Ideological Segregation Online and Offline," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1799-1839.
  15. Martin Schneider & Monika Piazzesi, 2009. "Momentum traders in a search model of the housing market," 2009 Meeting Papers 1266, Society for Economic Dynamics.
  16. Jeremy C. Stein, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 379-406.
  17. 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.
  18. 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.
  19. Gadi Barlevy & Jonas D. M. Fisher, 2010. "Mortgage choices and housing speculation," Working Paper Series WP-2010-12, Federal Reserve Bank of Chicago.
  20. repec:hrv:faseco:33078973 is not listed on IDEAS
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  1. Understanding Booms and Busts in Housing Markets (JPE 2016) in ReplicationWiki
  2. Canadian Macro Study Group

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