Working Paper: NBER ID: w2748
Authors: Karl E. Case; Robert J. Shiller
Abstract: A questionnaire survey looked at home buyers in May 1988 in two "boom" cities currently experiencing rapid price increases (Anaheim and San Francisco), a "post-boom" city whose home prices are stable or falling a couple years after rapid price increase (Boston) and a "control" city where home prices had been very stable (Milwaukee). Home buyers in the boom cities had much higher expectations for future price increases, and were more influenced by investment motives. The interpretations that people place on the boom are not usually related to any concrete news event; there are instead oft-repeated cliches about home prices. This suggests that sudden real estate booms have, at least in part, a social, rather than rational or economic, basis. There is evidence for excess demand in boom markets and excess supply in the post-boom market; there appear to be various reasons for this: notions of fairness, intrinsic worth, popular theories about prices, coordination problems, and simple mistakes.
Keywords: Housing Market; Home Buyers; Price Expectations; Market Psychology
JEL Codes: R31; D84
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Buyers' expectations (D84) | Market prices (P22) |
| Investment motives (G11) | Buyer behavior (D12) |
| Social perceptions (Z13) | Excess demand (E41) |
| Seller psychology (L85) | Excess supply (J20) |