Working Paper: NBER ID: w14669
Authors: Monika Piazzesi; Martin Schneider
Abstract: This paper studies household beliefs during the recent US housing boom. The first part presents evidence from the Michigan Survey of Consumers. To characterize the heterogeneity in households' views about housing and the economy, we perform a cluster analysis on survey responses at different stages of the boom. The estimation always finds a small cluster of households who believe it is a good time to buy a house because house prices will rise further. The size of this "momentum" cluster doubled towards the end of the boom. The second part of the paper provides a simple search model of the housing market to show how a small number of optimistic investors can have a large effect on prices without buying a large share of the housing stock.
Keywords: housing market; momentum traders; consumer beliefs; cluster analysis; search model
JEL Codes: E0; G1; G12; R2; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimistic beliefs (D84) | housing prices (R31) |
| momentum traders (C69) | housing prices (R31) |
| increase in optimistic renters (R21) | average home sale prices (R31) |
| volume of transactions (G15) | price dynamics in housing market (R31) |