Expectations During the U.S. Housing Boom: Inferring Beliefs from Vacant Homes
Charles A. Dice Center Working Paper No. 2019-08
51 Pages Posted: 21 Mar 2019 Last revised: 8 Nov 2019
Date Written: November 4, 2019
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: Suggested Citation