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

Itzhak Ben-David, Pascal Towbin, Sebastian Weber

NBER Working Paper No. 25702
Issued in March 2019, Revised in November 2019
NBER Program(s):Asset Pricing Program, Corporate Finance Program, Economic Fluctuations and Growth Program

We infer the role of price expectations in forming the U.S. housing boom in the early- 2000s from examining housing inventories. We use a reduced form model to show that agents invest in vacant homes when they anticipate prices will increase. Empirically, vacancy can discriminate between price movements related to shocks to demand for housing services (low vacancy) and shocks to expectations (high vacancy). Using a structural vector autoregression with sign restrictions, we show that expectation shocks were a prime factor explaining the boom particularly in the Sand States, which experienced unprecedented booms.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w25702