What Have They Been Thinking? Home Buyer Behavior in Hot and Cold Markets: A Ten-Year Retrospect

This is an update of a paper that we published with Karl E. Case in Brookings Papers on Economic Activity in 2012. The paper analyzes data from our annual questionnaire survey of US home buyers to understand their expectations for future home price changes. We again see a period of rapid price increase as we did in our surveys a decade ago. We find that home buyers were generally well informed, and their short-run expectations were conservative, typically underreacting to the year-to-year changes in actual home prices. Housing bubbles can be seen in their long-term (annualized ten-year) home price expectations. The long boom that preceded the 2007-2009 crisis was associated with changing public understanding of speculative bubbles. During the early years of this decade-long rebound, both short- and long-term expectations were out of line with actual changes in prices. Since 2013, long-term expectations have converged with short-term expectations and actual price changes in most locations, and all three series have moved in synch. With the onset of COVID-19, in 2021 actual and anticipated appreciation diverged once again. This time, however, short-term expectations surged above long-term expectations but remained far below actual appreciation rates. Buyers presumed a coming slowdown in the market that has yet to materialize.