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

Fisher College of Business Working Paper No. 2019-03-008

Charles A. Dice Center Working Paper No. 2019-08

51 Pages Posted: 21 Mar 2019 Last revised: 8 Nov 2019

See all articles by Itzhak Ben-David

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Pascal Towbin

Swiss National Bank

Sebastian Weber

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: November 4, 2019

Abstract

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.

Keywords: Expectations, Real Estate, Boom, Bust, Bubble, Vacancy

JEL Classification: E32, E71, G12, R31

Suggested Citation

Ben-David, Itzhak and Towbin, Pascal and Weber, Sebastian, Expectations During the U.S. Housing Boom: Inferring Beliefs from Vacant Homes (November 4, 2019). Fisher College of Business Working Paper No. 2019-03-008. Available at SSRN: https://ssrn.com/abstract=3356865 or http://dx.doi.org/10.2139/ssrn.3356865

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

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Pascal Towbin

Swiss National Bank ( email )

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Sebastian Weber

International Monetary Fund (IMF) ( email )

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Washington, DC 20431
United States

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