Working Paper: NBER ID: w27412
Authors: Nicolas L. Bottan; Ricardo Perez-Truglia
Abstract: Home price expectations play a central role in macroeconomics and finance. However, there is little direct evidence on how home price expectations affect market choices. We provide the first causal evidence based on a large-scale, high-stakes, and naturally occurring field experiment in the United States. We mailed letters with information on trends in home prices to 57,910 homeowners who had listed their homes on the market. Collectively, these homes were worth $34 billion. We randomized the information contained in the mailing to create non-deceptive, exogenous variation in the subjects’ home price expectations. We then used rich administrative data to measure the effects of these information shocks on the subjects’ market choices. We found that, consistent with economic theory, higher home price expectations caused a reduction in the probability of selling the home. These effects were highly statistically significant, economically large in magnitude, and robust to a number of sharp checks. Our results indicated that market choices were highly elastic to expectations: a 1 percentage point increase in home price expectations caused a 2.63 percentage point reduction in the probability of selling the property within 12 weeks.
Keywords: Home Price Expectations; Market Choices; Field Experiment
JEL Codes: C81; C93; D83; D84; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher home price expectations (R21) | Reduction in the probability of selling a home (R21) |
| 1 percentage point increase in home price expectations (R21) | 2.63 percentage point decrease in the likelihood of selling the property within 12 weeks (R21) |
| Information shocks (D82) | Changes in market choices (D49) |
| Information shocks (D82) | Persistent effects over time (C41) |