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

51 Pages Posted: 1 Apr 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: March 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.

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Suggested Citation

Ben-David, Itzhak and Towbin, Pascal and Weber, Sebastian, Expectations During the U.S. Housing Boom: Inferring Beliefs from Actions (March 2019). NBER Working Paper No. w25702. Available at SSRN: https://ssrn.com/abstract=3363438

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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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