Inferring Expectations from Observables: Evidence from the Housing Market

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

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

45 Pages Posted: 21 Mar 2019 Last revised: 25 Mar 2021

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: March 25, 2021

Abstract

We propose a new method to identify shifts in price expectations in the housing market through the accumulation of excess capacity. Expectations of future price increases (due to anticipated future demand for housing services) cause the current supply to increase, creating a temporary vacancy. We implement this intuition in a structural vector autoregression with sign restrictions and explore the effects of price expectations in the U.S. housing market. We find that price expectation shocks were a prime factor explaining the 1996-2006 boom, particularly in the Sand States. Expectation shocks at the boom's peak reflected implausible growth expectations and reversed during the bust.

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, Inferring Expectations from Observables: Evidence from the Housing Market (March 25, 2021). Fisher College of Business Working Paper No. 2019-03-008, Charles A. Dice Center Working Paper No. 2019-08, 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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HOME PAGE: http://https://u.osu.edu/ben-david.1/

National Bureau of Economic Research (NBER) ( email )

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HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Pascal Towbin

Swiss National Bank ( email )

Research
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Sebastian Weber

International Monetary Fund (IMF) ( email )

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Washington, DC 20431
United States

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