Home price expectations and behavior: evidence from a randomized information experiment

Luis Armona, Andreas Fuster and Basit Zafar

No 798, Staff Reports from Federal Reserve Bank of New York

Abstract: Home price expectations are believed to play an important role in housing dynamics, yet we have limited understanding of how they are formed and how they affect behavior. Using a unique ?information experiment? embedded in an online survey, this paper investigates how consumers? home price expectations respond to past home price growth and how they impact investment decisions. After eliciting respondents? initial beliefs about past and future local home price changes, we present a random subset of the respondents with factual information about past (one- or five-year) changes and then re-elicit expectations. This unique ?panel? data allows us to identify causal effects of the information and provides insights on the expectation formation process. We find that, on average, year-ahead home price expectations are revised in a way consistent with short-term momentum in home price growth, though respondents tend to underpredict the strength of momentum. Revisions of longer-term expectations show that respondents do not expect the empirically occurring mean reversion in home price growth. These results are consistent with recent behavioral models of housing cycles. Finally, we present robust evidence of home price expectations impacting (actual and intended) housing-related behaviors, both in the cross section and within-individual.

Keywords: housing; expectation formation; information; updating (search for similar items in EconPapers)
JEL-codes: D84 G11 R21 (search for similar items in EconPapers)
Date: 2016-10-19
New Economics Papers: this item is included in nep-exp, nep-mkt and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://www.newyorkfed.org/research/staff_reports/sr798.html Summary (text/html)
https://www.newyorkfed.org/medialibrary/media/rese ... orts/sr798.pdf?la=en Full text (application/pdf)

Related works:
Journal Article: Home Price Expectations and Behaviour: Evidence from a Randomized Information Experiment (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:798

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().