Home Price Expectations and Spending: Evidence from a Field Experiment

Abstract

We conduct a field experiment with US households to study how expectations about long-run home price growth shape spending decisions. We exogenously vary survey respondents’ expectations by providing different expert forecasts. Homeowners’ spending, measured using rich home-scanner data, is inelastic to home price expectations. By contrast, renters reduce their spending when expecting higher home price growth. These patterns reflect positive endowment effects for owners from higher future wealth and negative income effects for both groups due to higher future housing costs. Our study highlights consequences of asset price growth and long-term expectations about the economy for household behavior.

Keywords: consumption, expectations, home prices, homeowner, information, renter

JEL Classification: D140, D830, D840, E030, E210