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Expectations During the U.S. Housing Boom: Inferring Beliefs from Actions

Author

Listed:
  • Ben-David, Itzhak

    (Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER))

  • Towbin, Pascal

    (Swiss National Bank)

  • Weber, Sebastian

    (International Monetary Fund (IMF))

Abstract

We assess the role of price expectations in forming the U.S. housing boom in the mid-2000s by studying the dynamics of vacant properties. When agents anticipate price increases, they amass excess capacity. Thus, housing vacancy discriminates between price movements related to shocks to demand for housing services (low vacancy) and expectation shocks (high vacancy). We implement this idea using a structural vector autoregression with sign restrictions. In the aggregate, expectation shocks are the most important factor explaining the boom, immediately followed by mortgage rate shocks. In the cross-section, expectation shocks are the major factor explaining price movements in the Sand States, which experienced unprecedented booms.

Suggested Citation

  • Ben-David, Itzhak & Towbin, Pascal & Weber, Sebastian, 2019. "Expectations During the U.S. Housing Boom: Inferring Beliefs from Actions," Working Paper Series 2019-8, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2019-8
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    Cited by:

    1. Calvin He & Gianni La Cava, 2020. "The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets," RBA Research Discussion Papers rdp2020-02, Reserve Bank of Australia.
    2. William N Goetzmann & Christophe Spaenjers & Stijn Van Nieuwerburgh, 2021. "Real and Private-Value Assets [Gendered prices]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3497-3526.
    3. Greg Howard & Jack Liebersohn, 2023. "Regional Divergence and House Prices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 312-350, July.
    4. Büchler, Simon & Ehrlich, Maximilian v. & Schöni, Olivier, 2021. "The amplifying effect of capitalization rates on housing supply," Journal of Urban Economics, Elsevier, vol. 126(C).
    5. Klaus Adam & Oliver Pfäuti & Timo Reinelt, 2020. "Falling Natural Rates, Rising Housing Volatility and the Optimal Inflation Target," CRC TR 224 Discussion Paper Series crctr224_2020_235, University of Bonn and University of Mannheim, Germany.
    6. Flannery, Mark J. & Lin, Leming & Wang, Luxi, 2022. "Housing booms and bank growth," Journal of Financial Intermediation, Elsevier, vol. 52(C).
    7. Tom Cusbert, 2023. "The Effect of Credit Constraints on Housing Prices: (Further) Evidence from a Survey Experiment," RBA Research Discussion Papers rdp2023-01, Reserve Bank of Australia.

    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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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