Working Paper: CEPR ID: DP17158
Authors: Theresa Kuchler; Johannes Stroebel; Monika Piazzesi
Abstract: We review the recent literature on the determinants and effects of housing market expectations. We begin by providing an overview of existing surveys that elicit housing market expectations, and discuss how those surveys may be expanded in the future. We then document a number of facts about time-series and cross-sectional patterns of housing market expectations in these survey data, before summarizing research that has studied how individuals form these expectations. Housing market expectations are strongly influenced by recently observed house price changes, by personally or locally observed house price changes, by house price changes observed in a person's social network, and by current home ownership status. Similarly, experienced house price volatility affects expectations uncertainty. We also summarize recent work that documents how differences in housing market expectations translate into differences in individuals’ housing market behaviors, including their home purchasing and mortgage financing decisions. Finally, we highlight research on how expectations affect aggregate outcomes in the housing market.
Keywords: expectation formation; housing markets; mortgage choice; extrapolative expectations; peer effects; social learning
JEL Codes: D83; G5; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| recent house price changes (R31) | housing market expectations (R31) |
| personal experiences (C90) | housing market expectations (R31) |
| social network information (D85) | housing market expectations (R31) |
| housing market expectations (R31) | decisions to buy or sell homes (R21) |
| housing market expectations (R31) | mortgage financing choices (G21) |
| housing market expectations (R31) | perceived risks and uncertainties (D81) |
| differences in expectations (D84) | variations in individual actions (C91) |
| collective expectations (D70) | aggregate outcomes in the housing market (R31) |
| aggregate outcomes in the housing market (R31) | price volatility and market cycles (E32) |