Home Price Expectations and Behaviour: Evidence from a Randomized Information Experiment
By Luis Armona, Andreas Fuster, basit. zafar. The Review of Economic Studies, 2018
237 citations recorded by the source corpus.
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 behaviour. Using a unique “information experiment” embedded in an online survey, this article investigates how consumers’ home price expectations respond to past home price growth, and how they impact investment decisions. After eliciting respondents’ priors about past and future local home price changes, we present a random subset of them 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 patterns are in line with recent behavioural models of housing cycles. Finally, we show that home price expectations causally affect investment decisions in a portfolio choice experiment embedded in the survey.
Subfields: Accounting, Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/cb874144f0669475c442f03a352e9f3a9be404d9
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Citations in the corpus
- Survey Measurement of Probabilistic Macroeconomic Expectations: Progress and Promise (2017, unknown): “Similarly, Armona, Fuster, and Zafar (2016) used a survey information experiment to examine how consumers revise expectations for home prices.”
- House Price Momentum and Strategic Complementarity (2018, background): “First, the concave demand curve is similar to “kinked” demand curves (Stiglitz, 1979) which, since the pioneering work of Ball and Romer (1990) has been frequently cited as a potential source of real rigidities. In particular, a “smoothed-out kink” extension of Dixit-Stiglitz preferences proposed by”
- Exposure to Daily Price Changes and Inflation Expectations (2019, unknown): “Earlier research has already shown this point for housing and mortgage choices (Malmendier and Nagel (2015a); Armona et al. (2018)) and consumption and saving decisions (D’Acunto et al. (2016)).”
- Speculative dynamics of prices and volume (2017, unknown): “In the housing market, Armona et al. (2016) survey expected capital gains over 1- and 5year horizons and relate those expectations to perceptions of recent local price changes. They find that 1-year ahead expectations are nearly five times more sensitive to perceived past price changes than annualiz”
- How Do Expectations about the Macroeconomy Affect Personal Expectations and Behavior? (2020, unknown): “, 2015) or past house price growth (Armona et al., 2016).”