Article

Economic Consequences of Housing Speculation

Authors:
To read the full-text of this research, you can request a copy directly from the authors.

Abstract

By exploiting variation in state capital gains taxation as an instrument, we analyze the economic consequences of housing speculation during the U.S. housing boom in the 2000s. We find that housing speculation, anchored, in part, on extrapolation of past housing price changes, led not only to greater price appreciation, economic expansions, and housing construction during the boom in 2004–2006 but also to more severe economic downturns during the subsequent bust in 2007–2009. Our analysis supports supply overhang and local household demand as two key channels for transmitting these adverse effects.

No full-text available

Request Full-text Paper PDF

To read the full-text of this research,
you can request a copy directly from the authors.

... Within this view, there is also considerable variation across narratives. Was the expansion caused mainly by speculators in the form of non-occupant buyers ( Haughwout et al., 2011;Gao et al., 2019 ) or out-of-town second home buyers ( Chinco and Mayer, 2016 )? Theories also differ as to whether investors naively overextrapolated past house price growth ( Glaeser and Nathanson, 2017;De-Fusco et al., 2018;Gennaioli and Shleifer, 2018 ) or experienced a more general shift in housing beliefs ( Kaplan et al., 2019 ). ...
... The four credit supply variables are subprime share ( Mian and Sufi, 2009 ), noncore deposit liabilities (which captures lender sensitivity to securitization growth) ( Mian and Sufi, 2019 ), worse originator market share (which captures the prevalence of lenders with dubious origination practices) ( Griffin and Maturana, 2016a ), and the rate of private label securitization. The three speculation and belief variables are the percent of home purchases that are not owner-occupied ( Gao et al., 2019 ), out-of-town second-home purchaser share ( Chinco and Mayer, 2016 ), and extrapolative beliefs based on past house price growth (as proposed theoretically by Glaeser and Nathanson, 2017, DeFusco et al., 2018, and Gennaioli and Shleifer, 2018. ...
... Conceptually, origination practices can vary within MSAs based on the location of the originator, speculators can focus their purchase activities in certain zip codes or neighborhoods, and extrapolative beliefs are as relevant to hot neighborhoods as to hot MSAs. Consistent with the rationale of analyzing granular data, most of the literature focuses on zip-code-level data to empirically analyze the cross-section of house prices ( Mian and Sufi, 2009;Mian and Sufi, 2019;Griffin and Maturana, 2016a;Gao et al., 2019 ). 4 Potential drawbacks of MSA fixed effects are that there could be limited variation within MSAs or variables could be noisy at the zip code level. ...
Article
Full-text available
Ten years after the financial crisis, the central question of what explains the rise and fall in house prices remains unresolved. We provide a unified framework to examine four excess credit supply variables and three speculation variables that have been proposed in the literature. Credit supply variables, particularly subprime share and worse originator share, strongly relate to future zip-code-level house price changes in the boom and bust, whereas none of the speculation variables consistently relate to house prices within MSAs. Pre-trends, supply elasticity, and depressed areas suggest these relations are not driven by lenders anticipating house price growth.
... In some states where we find a positive effect of uncertainty on housing investment growth, such as Connecticut (Tables 3 and 7), Massachusetts (Table 3), Oregon (Tables 3 and 7), and Rhode Island (Table 3), the evidence by Higgins andOsler (1998) andCase andShiller (2003) indicates speculative housing markets. In addition, Gao et al. (2017) argue that in states with zero capital gains tax, speculation in the housing markets may be more common. ...
Article
Housing is distinct from other financial assets, since it is a durable consumer good for households. Due to the irreversible nature of housing investment, uncertainty should be an important determinant of housing investment. From a theoretical point of view, though, this impact is ambiguous. This paper extends previous empirical work by employing the techniques of bivariate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models in a group of forty-eight US states. In particular, we use data on housing permits as a proxy for housing investment and the house price index for the forty-eight contiguous US states and estimate bivariate GARCH models (BEKK) for each state, in order to obtain proxies of housing investment and house price uncertainty. Moreover, we use the Economic Policy Uncertainty index as an alternative measure of uncertainty. This setup allows us to test for the impact of uncertainty on housing investment growth and house price inflation and examine whether the effects differ across the different states. In general, we find that in most states uncertainty tends to increase housing investment growth and to decrease house price inflation. The cross-state differences in results may be due to variation in the degree of speculation in housing markets.
... Chinco and Mayer (2016) find that second home buying led to higher house prices (and mispricing) in a panel of 21 cities using a high frequency panel VAR identification approach. Gao et al. (2018) also find that second home buying contributed to the boom-bust in activity, though they use data from the Home Mortgage Disclosure Act, which is known to underreport second home buying (Elul and Tilson (2015)). Overall, the results in this paper are complementary to this literature; the main contribution is using new data combining the strength of datasets previously used in isolation (credit bureau data and mortgage servicing records), a novel identification strategy, and results that include a broad set of outcome variables including employment. ...
Article
Record-high second home buying (homeowners acquiring nonprimary residences) was a central feature of the 2000s boom, but the macroeconomic effects remain an open question partly because reliable geographic data is currently unavailable. This paper constructs local data on second home buying by merging credit bureau data with mortgage servicing records. The identification strategy exploits the fact that the vacation share of housing from the 2000 Census is predictive of second home origination shares during the boom years, while also uncorrelated with other boom-bust drivers including proxies for local housing expectations, the use of alternative and PLS mortgages, and supply constraints. Localities with plausibly exogenous higher second home origination shares experienced a more pronounced boom and bust - stronger growth in construction and house prices during the boom, and steeper declines in activity during the recession years. Overall, second home buying could exp lain about 30 and 15 percent of the run-up in construction employment and house prices, respectively, over 2000-2006.
... Speculative bubbles are a major destabilizing factor for the economy and often have persistent real consequences (e.g. Brunnermeier and Schnabel, 2016;Brunnermeier et al., 2020;Gao et al., 2020). Perhaps one of the most well-known examples is the long-lasting economic stagnation in Japan during 1991 to 2001 ("the lost decade") after the burst of its stock market bubble (Hoshi and Kashyap, 2004). ...
Preprint
Full-text available
The massive price bubbles of decentralized cryptocurrencies, such as Bitcoin, have created a puzzle for economists. How can a non-revenue-generating asset exhibit such extreme price dynamics, forming multiple episodes of bubbles and crashes since its creation? The answer is not straightforward, since cryptocurrencies differ in several important aspects from other conventional assets. In this paper, we investigate how costly mining, a defining feature of the majority of cryptocurrencies, affects pricing. In a controlled laboratory experiment, we observe that the formation of price bubbles can be causally attributed to costly mining. Moreover, bubbles are more pronounced if the mining capacity is centralized to a small group of individuals. Analysis of the order book data reveals that miners seem to play a crucial role in bubble formation. The results demonstrate that high price volatility is an inherent feature of cryptocurrencies based on a mining protocol, which seriously limits any prospects for such assets truly becoming a medium of exchange.
... An increase in the collateral value of its assets can provide households access to more loans on preferential terms (via the so-called "credit channel" -a mechanism for transferring monetary policy into the real economy). This, in turn, can contribute to increased demand for housing, and to additional increase in housing prices [6]. Thus, a condition of simultaneous increase in household debt and the market value of housing assets occurs. ...
Article
Full-text available
In a modern welfare state, regardless of its model, the mortgage institute is significant. It is an economic instrument that facilitates implementation of various social projects. Mortgage lending has several definitions that differ depending on the study purposes, legislation of the country concerned, and the branch of knowledge is being analyzed. In terms of the economic substance, a mortgage is a mechanism for securing an obligation by means of a pledge of real property, the purpose of which is to increase funds under a long-term loan. This means that the creditor, under the existing laws, can dispose of real estate served as a pledge to pay off the borrower's arrears in the event of bankruptcy or other factors
... Bayer et al. (2020) document substantial entry by such (amateur) "speculators" during housing boom periods-completely mistiming the market. DeFusco, Nathanson, and Zwick (2020) and Gao, Sockin, and Xiong (2020) argue that variation in speculative activity can play a role in amplifying housing market cycles. By contrast, Griffin, Kruger, and Maturana (2020) Other financially driven art and housing buyers act as intermediaries or arbitrageurs, buying undervalued assets-often from forced sellers-and bringing them back to the market quickly. ...
Article
Real and private-value assets—defined here as the sum of real estate, infrastructure, collectibles, and noncorporate business equity—compose an investment class worth an estimated $84 trillion in the U.S. alone. Furthermore, private values can affect pricing in many other financial markets, such as that for sustainable investments. This paper introduces the research on real assets and private values that can be found in this special issue. It also reviews recent advances and highlights new research directions on a number of topics in the real assets space that we believe to be particularly important and exciting.
... Увеличение залоговой стоимости их активов может дать домашним хозяйствам доступ к большему количеству кредитов и на более выгодных условиях (через так называемый «кредитный канал» -механизма трансмиссии монетарной политики в реальную экономику). Это, в свою очередь, может способствовать росту спроса на жилье, а значит, повторному росту цен на жилье [6]. Таким образом возникает ситуация одновременного роста долга домохозяйств и рыночной стоимости жилищных активов. ...
Article
Full-text available
12.06.2019. Организаторы: Балтийская международная академия, Латвийская конфедерация работодателей, Экономический дипломатический клуб и интернет-журнал Baltic-course.com Ипотечное кредитование имеет несколько определений, которые отличаются в зависимости от целей исследования, законодательства рассматриваемой страны и отрасли науки, которая подвергается анализу. С точки зрения экономической сущности, ипотека-это механизм обеспечения обязательства при помощи залога недвижимого имущества, целью которого является прирост средств в рамках долгосрочного кредита. Это означает, что кредитор на основании действующего законодательства может распоряжаться недвижимым имуществом, выступающим залогом, для погашения образовавшейся задолженности заёмщика в случае его банкротства или других факторов, которые мешают ему исполнить обязательства по кредиту [1]. В Гражданском законе Латвийской Республики ипотека определяется как залог недвижимой вещи без передачи во владение [2]. Ипотечное кредитование имеет решающее значение как для благосостояния домохозяйств, так и для уровня развития национальной экономики в целом. Недвижимость (дом или квартира) часто являются наиболее ценным имуществом для большинства домашних хозяйств, а ипотека, в свою очередь, является их основным источником дополнительных заемных средств, поэтому наличие ипотеки и ее условия оказывает огромное влияние на финансы домашних хозяйств [3]. Недавние
... Chinco and Mayer (2016) find that second-home buying led to higher house prices (and mispricing) in a panel of 21 U.S. cities using a high frequency panel VAR identification approach. Gao et al. (2018) also find that second-home buying contributed to the boom-bust in activity, though they use data from the Home Mortgage Disclosure Act, which is known to underreport second-home buying (Elul and Tilson (2015)). Overall, the results in this paper are complementary to this literature; the main contribution is using new data combining the strength of datasets previously used in isolation (credit bureau data and mortgage servicing records), a novel identification strategy, and results that include a broad set of outcome variables including employment. ...
... Speculative bubbles are a major destabilizing factor for the economy and often have persistent real consequences (e.g. Brunnermeier and Schnabel, 2016;Brunnermeier et al., 2020;Gao et al., 2020). Perhaps one of the most well-known examples is the long-lasting economic stagnation in Japan during 1991 to 2001 ("the lost decade") after the burst of its stock market bubble (Hoshi and Kashyap, 2004). ...
Article
The massive price bubbles of decentralized cryptocurrencies, such as Bitcoin, have created a puzzle for economists. How can a non-revenue-generating asset exhibit such extreme price dynamics, forming multiple episodes of bubbles and crashes since its creation? The answer is not straightforward, since cryptocurrencies differ in several important aspects from other conventional assets. In this paper, we investigate how key features associated with the Proof-of-Work consensus mechanism affect pricing. In a controlled laboratory experiment, we observe that the formation of price bubbles can be causally attributed to mining. Moreover, bubbles are more pronounced if the mining capacity is centralized to a small group of individuals. Analysis of the order book data reveals that miners seem to play a crucial role in bubble formation. The results demonstrate that high price volatility is an inherent feature of cryptocurrencies based on a mining protocol, which seriously limits any prospects for such assets truly becoming a medium of exchange.
... Mian and Sufi (2014) propose it as an instrument for the housing shock because lower housing supply elasticity would allow house prices to increase more quickly in the run-up years from 2002-06, thus allowing households to raise more debt in comparison to their incomes. Following the findings of a nonlinear relationship between housing supply elasticity and local housing cycles (Gao, Sockin, and Xiong, 2016), we use a discretized version of the instrument with separate dummy variables for elasticity terciles. ...
Article
Full-text available
This paper shows that the 2006-09 U.S. housing crisis had scarring local effects. For a given county, a 10 percent reduction in housing wealth from 2006 through 2009 led to a 3.3 percent decline in employment by 2018 and a commensurate decline in value added. This persistent effect occurred despite the shock having no significant impact on labor productivity and only a short-lived impact on household demand, house prices, and household leverage. The authors find that the local labor market adjustment to the housing shock was particularly costly: local wages did not respond, and long-run convergence in the local labor market slack instead took place entirely through population losses in affected regions. These results on population adjustment leading to mean-reversion in local slack extend the seminal observations by Blanchard and Katz (1992) to the effects of a temporary and identified local demand shock. Additionally, the authors show that the housing bust, compared with the housing boom, had asymmetric effects on employment and wages, indicating a role for downward wage rigidity.
... Our model explicitly addresses the role of transportation and shows that although better transportation increases migration to high productivity cities, it does not necessarily dampen the effect of exogenous productivity shocks on housing prices. 3 Our paper also addresses issues raised by Davidoff (2013), Gao et al. (2020) and Nathanson and Zwick (2018), which introduce combinations of behavioral biases and market frictions to explain why relatively unconstrained cities, like Las Vegas, experienced large price run ups in the early 2000s. 4 We contribute to this debate by showing that large price run ups can be generated with rational and unconstrained agents. ...
Article
Full-text available
z Balon, bir varlığın fiyatının temel değerinden sapması, fiyat hareketlerinin temel etkenlerle açıklanamaması şeklinde tanımlanmaktadır. Konut balonu ise, toplumun aşırı beklentileri ile konut fiyatlarının geçici olarak, temel değerden sapmasını ifade etmekte olup gelecekte konut fiyatlarının gerçekçi olmayacak şekilde artacağını bekleyen konut alıcıları tarafından yönlendirilmektedir. Konut fiyatlarının hızlı ve olağan dışı artma eğiliminde olduğu dönemlerde pozitif, azalış eğiliminde olduğu dönemlerde ise negatif konut balonunun olduğu önsel olarak beklenebilir. Son yıllarda Ankara'da konut arz fazlası gözlenmektedir. Oysa aynı dönemlerde nominal konut fiyatlarında artış, reel konut fiyatlarında azalış görülmektedir. Bu durum, Ankara'da konut balonu olup olmadığı sorusunu beraberinde getirmektedir. Ankara'da konut fiyatlarında balonunun varlığının araştırılması ve olası balonun sınıflandırılması çalışmanın temel amacını oluşturmaktadır. Bu çalışma, "rasyonel baloncuklar" olarak adlandırılan rasyonel tipteki baloncuklar üzerine odaklanmıştır. Bu terminoloji, rasyonel beklentilere sahip varlık yatırımcılarını dikkate alan modellerdeki varlık fiyat balonlarını ifade eder. Genel olarak rasyonel baloncukların teorik olarak test edilmesi büyük ölçüde, bilginin mevcudiyeti ve erişimi, işlem kısıtlamaları, likidite kolaylık ve düzenlemeleri, vergi uygulamaları gibi ekonomik varsayımların geçerli olmasına dayanır. Çalışmada 2010.01-2019.08 dönemi aylık mevsimsel etkiden arındırılmış Ankara ili reel konut fiyat endeksi verileri kullanılarak, Ankara için konut fiyatlarında balon yapısının varlığı sınanmış ve bu yapının türü incelenmiştir. Bu amaçla varlık fiyatları patlayıcılık sınamaları kullanılmıştır. Bu sınamaların en güncelleri SADF ve GSADF sınamalarıdır. Bu sınamalar özyinelemeli ve aktarmalı ADF birim kök sınaması temellidir ve genişleyen pencere yapısıyla sağ-yönlü ADF sınama istatistiği kullanır. Sınamalar için kritik değerler Monte Carlo simülasyonları ile bulunmuştur. Sınama bulguları, Ankara ili reel konut fiyat endeksinde konut balonu olduğu yönündedir.
Article
Full-text available
This paper studies the US housing market using a proprietary and comprehensive dataset covering nearly 90 million residential transactions over 1998-2018. First, we document the evolution of different types of investment purchases such as those conducted by short-term buyers, out-of-state buyers, and corporate cash investors. Second, we quantify the contributions of non-primary home buyers to the housing cycle. Our findings suggest that the share of short-term investors grew substantially in the run-up to the global financial crisis (GFC), which amplified the boom-bust cycle, while out-of-state buyers propped up prices in some areas during the recession. An instrumental variable approach is employed to establish a causal relationship between housing investors and prices. Finally, we show that the recent rise of shadow bank lending in the residential market is associated with riskier mortgages, and explore its implications for non-primary home buyers and its effects on house prices and rents.
Article
We investigate the impact of Great Recession policies in California that substantially increased lender pecuniary and time costs of foreclosure. We estimate that the California Foreclosure Prevention Laws (CFPLs) prevented 250,000 California foreclosures (a 20% reduction) and created $\$$ 300 billion in housing wealth. The CFPLs boosted mortgage modifications and reduced borrower transitions into default. They also mitigated foreclosure externalities via increased maintenance spending on homes that entered foreclosure. The CFPLs had minimal adverse side effects on the availability of mortgage credit for new borrowers. Altogether, findings suggest that policy interventions that keep borrowers in their homes may be broadly beneficial during times of widespread housing distress.
Article
We study the relationship between homebuyers’ beliefs about future house price changes and their mortgage leverage choices. Whether more pessimistic homebuyers choose higher or lower leverage depends on their willingness and ability to reduce the size of their housing market investments. When households primarily maximize the levered return of their property investments, more pessimistic homebuyers reduce their leverage to purchase smaller houses. On the other hand, when considerations such as family size pin down the desired property size, pessimistic homebuyers reduce their financial exposure to the housing market by making smaller downpayments to buy similarly-sized homes. To determine which scenario better describes the data, we investigate the cross-sectional relationship between house price beliefs and mortgage leverage choices in the U.S. housing market. We use plausibly exogenous variation in house price beliefs to show that more pessimistic homebuyers make smaller downpayments and choose higher leverage, in particular in states where default costs are relatively low, as well as during periods when house prices are expected to fall on average. Our results highlight the important role of heterogeneous beliefs in explaining households’ financial decisions.
Chapter
A house is a highly leveraged and illiquid asset, accounting for a significant fraction of a household’s portfolio and funded by a long-term mortgage. In a perfectly competitive economy, mortgage market economics would be a matter of indifference. However, in the presence of market imperfections, households have to make important decisions regarding mortgage demand, mortgage choices, refinancing and default. The impact of financial innovation in the housing market, deregulation, re-regulation, failure to control new mortgage products and overinvestment all contributed to and have a role to play in the ensuing subprime crisis.
Article
Uninformed buyers may pay more when purchasing complex assets, such as houses. This paper compares local house buyers who are later foreclosed with those not foreclosed for various buyer-types, namely, owner-occupier households, investor-companies, second-home buyers, and small-scale investors. Data from one of the foreclosure epicenters, Orange County, Florida, reveal that subsequent foreclosures are associated with higher prices for comparable housing at the time of purchase. The premium paid by buyers between 2000 and 2007 who experience foreclosure after 2007 is larger closer to the 2007 market peak, approaching 3 percent. We find considerable heterogeneity across buyer-types. In particular, foreclosed second-home buyers and small-scale investors systematically pay more, while investor-companies and owner-occupiers do not. The pattern is consistent with the hypothesis that the premium paid by foreclosed households reflects poor information or limited financial acumen.
Article
Purpose The purpose of this paper is to identify the drivers of residential price as well as the degree co-movement of housing among different states in Malaysia. Design/methodology/approach This study adopted an advanced econometrics technique: the dynamic autoregressive-distributed lag (DARDL) and – the time-frequency domain approach known as the wavelet coherence test. The DARDL model was applied to identify the cointegrating relationships and the CWT was used to analyze the co-movement and lead–lag relationships among four states’ regional housing prices. The extracted data were mainly on annual basis and comprised macroeconomics and financial factors. Information with regard to residential prices and other variables was extracted from the National Property Information Centre (NAPIC) website, the Central Bank of Malaysia Statistics Report, the Department of Statistics, Malaysia, I-Property.com and the World Bank (WB). The data covered in this study were the pool data from four main states in Malaysia and different categories of residential properties. Findings The empirical results indicate that there were long-run cointegration relationships between the housing price and capital gain and loss, rental per square feet, disposable income, inflation, number of marriages, deposit rate, risk premium and loan-to-value (LTV) ratio. While the wavelet analysis shows that (1) in the long run, Kuala Lumpur housing price having strong co-movement with Selangor, Penang and Melaka housing prices except for Johor and (2) the lead–lag relationship also postulates Kuala Lumpur housing price having in-phase category with Selangor, Penang and Melaka housing prices except for Johor. Practical implications This study offers relevant practical implications. First, the study proposes an active collaboration between the private sector and government support which may help to smooth the pricing issue of residential properties. More low-cost residential projects are needed for focus groups including middle- and low-income earners. Furthermore, the results are expected to provide real estate investor in Malaysia, an improved understanding of the regional housing market price dynamics. Originality/value The findings of this study were obtained from various reliable sources; therefore, the results reflected the analysis of price drivers and co-movements. Furthermore, findings from this study lend some support to the argument on the rise of residential prices and offer several policy implications from a practical point of view with regard to the residential market.
Article
Using a SVAR model with sign and zero restrictions, we propose a novel scheme to identify expectation, credit supply and mortgage rate shocks with the aim of exploring their role in the 2000s housing boom-bust cycles. Overall, credit supply and mortgage rate shocks are two major drivers of housing fluctuations instead of expectation shock. However, the relative importance of the three shocks varies considerably over different episodes. Specifically, gradual rise in house prices during 1999-2002 is mainly due to appreciation expectations. Such conclusion is reversed over boom-bust cycles. Compared with less than 10% contribution of expectation shock, credit supply and mortgage rate shocks become the two most important drivers of housing boom, with 20% and 24.5% contribution, respectively. In the bust, 20.2% and 23.1% of decline in house prices are associated with credit supply and mortgage rate shocks, respectively, while only 7.4% can be attributed to expectation shock.
Book
Full-text available
2020 m. įvykęs ekonomikos šokas, sukeltas COVID-19 pandemijos, paveikė šalies ekonomiką ir nekilnojamojo turto rinką. Mokslo studijoje siekiama įvertinti Lietuvos nekilnojamojo turto rinkos pokyčius ekonomikos šoko kontekste. Aptariama ekonomikos šoko samprata, tipai, sąsajos su ekonomikos ciklais, pateikiami ekonomikos šokų stabilizavimo būdai, stabilumo ir ekonomikos šoko ryšio prielaidos, akcentuojant valstybės vaidmenį. Leidinys aktualus įvairiems ekonomikos dalyviams: namų ūkiams, dalyvaujantiems nekilnojamojo turto rinkoje ir ekonomikoje; įmonėms, tiesiogiai ir netiesiogiai susijusioms su šia rinka ir veikimu joje; vyriausybės ir valdžios organams; analitikams ir ekspertams.
Article
The 2006–09 US housing crisis had scarring local effects. For a given county, a housing shock generating a 10% reduction in housing wealth from 2006 through 2009 led to a 4.4% decline in employment by 2018 and a commensurate decline in value added. This persistent local effect occurred despite the shock having no significant impact on labor productivity. The local labor market adjustment to the housing shock was particularly costly: local wages did not respond, and long-run convergence in the local labor market slack instead took place entirely through population losses in affected regions. Moreover, the 2002–06 housing boom does not generate significant employment gains, indicating that the employment losses relative to 2006 are also losses relative to the counterfactual case in which there was no housing cycle.
Article
I estimate the effects of second‐home buying (existing homeowners acquiring additional properties) on the housing boom and bust, by constructing a new measure and using a new identification strategy based on the rise in out‐of‐town demand for second homes in vacation areas during the housing boom. Areas with plausibly exogenous higher second‐home buying experienced a sharper boom and bust: faster growth in house prices and construction employment from 2000 to 2006, and a sharper contraction from 2006 to 2010. The results suggest that changes in credit demand were important in amplifying the recent housing cycle. This article is protected by copyright. All rights reserved
Article
Credit supply expansion boosts housing speculation and amplifies the housing cycle. The surge in private-label mortgage securitization in 2003 fueled a large expansion in mortgage credit supply by lenders financed with noncore deposits. Areas more exposed to these lenders experienced a large relative rise in transaction volume driven by a small group of speculators, and these areas simultaneously witnessed an amplified housing boom and bust. Consistent with the importance of belief heterogeneity, house price growth expectations of marginal buyers rose during the boom, while housing market pessimism among the general population increased.
Article
Full-text available
This paper attempts to explore the significant factors that determine the housing price in Malaysia. In this study, cointegration and Granger causality approaches were employed to examine the long-run relationship and direction causality between housing price and other variables which may affect to the changes in housing price such as level of income, development cost of residential building, population and speculation. Speculation is the major concern in this paper, whereby it has determined housing price in Malaysia. Furthermore, Granger causality test within the VAR framework shows that a bi-directional causality does exist between housing prices and speculation. In summary, the government must take an active role to monitor and design an appropriate policy instrument to curb the speculation activity in housing price, which may cause volatility.
Article
Many cities have attracted a flurry of out-of-town (OOT) home buyers. Such capital inflows affect house prices, rents, construction, labor income, wealth, and ultimately welfare. We develop an equilibrium model to quantify the welfare effects of OOT home buyers for the typical U.S. metropolitan area. When OOT investors buy 10% of the housing in the city center and 5% in the suburbs, welfare among residents falls by 0.61% in consumption-equivalent units. House prices and rents rise substantially, resulting in welfare gains for owners and losses for renters. Policies that tax OOT buyers or mandate renting out vacant property mitigate welfare losses. This article is protected by copyright. All rights reserved
Article
Landlords appear to use stale information when setting rents. Among over 43,000 California rental houses in 2018–2019, those last purchased during 2005–2007 (the peak) rent for 2–3% more than those purchased during 2008-2010 (bust). Neither house nor landlord characteristics explain this “peak-bust rental spread.” To clarify the mechanism, we test cross-sectional predictions from a simple theory of rent-setting. We find empirical support for both reference dependence and distorted beliefs. In the first, monthly payments establish (recurring) reference points, against which gains or losses are measured. In the second, past sales prices distort landlords’ current estimates of house values/rents.
Article
Between 2003 and 2006, the Federal Reserve raised rates by 4.25%. Yet it was precisely during this period that the housing boom accelerated, fueled by rapid growth in mortgage lending. There is deep disagreement about how, or even if, monetary policy impacted the boom. Using differences in exposure to the deposits channel of monetary policy, we show that Fed tightening induced a large reduction in banks’ deposit funding, which led banks to contract portfolio mortgage lending by 32%. However, this contraction was largely offset by substitution to privately-securitized (PLS) mortgages, led by nonbank originators. Fed tightening thus induced a shift in mortgage lending away from stable, insured deposit funding toward run-prone and fragile capital markets funding with little impact on overall lending. We find similar results during the most recent tightening cycle over 2014–2017 when PLS lending reemerged.
Article
Borrowers in states with non-recourse mortgage law face limited liability on their mortgage loans. Using a regression discontinuity design at state borders, we show that non-recourse law causes greater increase in housing prices during the U.S. housing boom in the 2000s by encouraging speculative investment demands. Non-recourse states experience greater investment-purpose housing purchases with highly leveraged mortgages during the boom period 2004-2006. We find that the emergence of the originate-to-distribute model enables lenders to effectively shift risk to other investors, thereby promoting excessive loan originations and amplifying the housing price increase in non-recourse states during a boom period.
Article
We develop a model to analyze information aggregation and learning in housing markets. Households enter a neighborhood by buying houses and consuming each other’s final goods. In the presence of pervasive informational frictions, housing prices serve as important signals to households and capital producers about the neighborhood’s economic strength. Our model provides a novel amplification mechanism in which noise from housing markets propagates throughout the local economy via learning because of the complementarity in households’ decisions, distorting migration into the neighborhood and the supply of capital and labor. We provide consistent evidence based on the recent U.S. housing cycle.
Article
Full-text available
Analyzing the period 1988-2006, we document that banks that are active in strong housing markets increase mortgage lending and decrease commercial lending. Firms that borrow from these banks have significantly lower investment. This is especially pronounced for firms that are more capital constrained or borrow from more-constrained banks. Various extensions and robustness analyses are consistent with the interpretation that commercial loans were crowded out by banks responding to profitable opportunities in mortgage lending, rather than with a demand-based interpretation. The results suggest that housing prices appreciations have negative spillovers to the real economy, which were overlooked thus far.
Article
Full-text available
We present evidence that a primary culprit for the severe U.S. recession of 2007 to 2009 is the dramatic expansion in household leverage from 2002 to 2006. The aggregate evidence shows that house prices, mortgage default rates, fixed residential investment, and durable consumption were the first serious signs of weakness in the economy, and all four of these outcomes are closely linked to the preceding growth in leverage from 2002 to 2006. U.S. counties with large increases in debt to income ratios prior to the recession experienced significantly worse economic outcomes during the downturn. In addition, consumers who were more reliant on credit card borrowing reduced consumption by significantly more following the financial crisis of the fall of 2008. Our estimates show that household leverage growth and dependence on credit card borrowing explain a large fraction of the overall consumer default, house price, unemployment, residential investment, and durable consumption patterns during the recession. We conclude that a focus on household finance is crucial if we are to understand the sources of macroeconomic fluctuations.
Article
Full-text available
Foreclosures during the 2007 to 2009 recession had a large negative effect on house prices, residential investment, and durable consumption. Our empirical methodology uses state laws requiring a judicial foreclosure as an instrument for actual foreclosures, as well as focusing on zip codes very close to state borders with differing foreclosure laws. We show that the likely channel for the house price effect is a large foreclosure-induced increase in the supply of houses on the market. Our findings are consistent with macroeconomic models in which the leverage-induced forced sale of assets amplifies negative shocks and reduces economic activity.
Article
Full-text available
We demonstrate that a rapid expansion in the supply of mortgages driven by disintermediation explains a large fraction of recent U.S. house price appreciation and subsequent mortgage defaults. We identify the effect of shifts in the supply of mortgage credit by exploiting within-county variation across zip codes that differed in latent demand for mortgages in the mid 1990s. From 2001 to 2005, high latent demand zip codes experienced large relative decreases in denial rates, increases in mortgages originated, and increases in house price appreciation, despite the fact that these zip codes experienced significantly negative relative income and employment growth over this time period. These patterns for high latent demand zip codes were driven by a sharp relative increase in the fraction of loans sold by originators shortly after origination, a process which we refer to as "disintermediation." The increase in disintermediation-driven mortgage supply to high latent demand zip codes from 2001 to 2005 led to subsequent large increases in mortgage defaults from 2005 to 2007. Our results suggest that moral hazard on behalf of originators selling mortgages is a main culprit for the U.S. mortgage default crisis.
Article
We study state taxes as a potential source of spatial misallocation in the U.S.. We build a spatial general equilibrium framework that incorporates salient features of the U.S. state tax system, and use changes in state tax rates between 1980 and 2010 to estimate the model parameters that determine how worker and firm location respond to changes in state taxes. We find that heterogeneity in state tax rates leads to aggregate welfare losses. In terms of consumption equivalent units, harmonizing state taxes increases worker welfare by 0.6% if government spending is held constant, and by 1.2% if government spending responds endogenously. Harmonization of state taxes within Census regions achieves most of these gains. We also use our model to study the general equilibrium effects of recently implemented and proposed tax reforms.
Article
This paper develops first measures of housing sentiment for 34 cities across the United States by quantifying the qualitative tone of local housing news. Housing media sentiment has significant predictive power for future house prices, leading prices by nearly two years. Consistent with theories of investor sentiment, the media sentiment index has a greater effect in markets in which speculative investors are more prevalent and demand appears less informed. Directly examining the content across news articles finds that results are not driven by news stories of unobserved fundamentals. Received October 21, 2015; editorial decision December 19, 2017 by Editor Robin Greenwood. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
Article
This paper documents facts about the state corporate tax structure — tax rates, base rules, and credits — and investigates its consequences for state tax revenue and economic activity. We present three main findings. First, tax base rules and credits explain more of the variation in state corporate tax revenues than tax rates do. Second, although states typically do not offset tax rate changes with base and credit changes, the effects of tax rate changes on tax revenue and economic activity depend on the breadth of the base. Third, as states have narrowed their tax bases, the relationship between tax rates and tax revenues has diminished. Overall, changes in state tax bases have made the state corporate tax system more favorable for corporations and are reducing the extent to which tax rate increases raise corporate tax revenue.
Article
We present a model of investment hangover motivated by the Great Recession. Overbuilding of durable capital such as housing requires a reallocation of productive resources to other sectors, which is facilitated by a reduction in the interest rate. When monetary policy is constrained, overbuilding induces a demand-driven recession with limited reallocation and low output. Investment in other capital initially declines due to low demand, but it later booms and induces an asymmetric recovery in which the overbuilt sector is left behind. Welfare can be improved by ex post policies that stimulate investment (including in overbuilt capital) and ex ante policies that restrict investment.
Article
A model in which homebuyers make a modest approximation leads house prices to display three features present in the data but usually missing from rational models: momentum at one-year horizons, mean reversion at five-year horizons, and excess longer-term volatility relative to fundamentals. Approximating buyers assume that past prices reflect only contemporaneous demand, just like professional economists who use trends in housing prices to infer trends in housing demand. Consistent with survey evidence, this approximation leads buyers to expect increases in the market value of their homes after recent house price increases.
Article
This paper studies a quantitative general equilibrium model of housing. The model has two key elements not previously considered in existing quantitative macro studies of housing finance: aggregate business cycle risk and a realistic wealth distribution driven in the model by bequest heterogeneity in preferences. These features of the model play a crucial role in the following results. First, a relaxation of financing constraints leads to a large boomin house prices. Second, the boom in house prices is entirely the result of a decline in the housing risk premium. Third, low interest rates cannot explain high home values.
Article
Regional shocks are an important feature of the US economy. Households' ability to self-insure against these shocks depends on how they affect local interest rates. In the United States, most borrowing occurs through the mortgage market and is influenced by the presence of government-sponsored enterprises (GSE). We establish that despite large regional variation in predictable default risk, GSE mortgage rates for otherwise identical loans do not vary spatially. In contrast, the private market does set interest rates which vary with local risk. We use a spatial model of collateralized borrowing to show that the national interest rate policy substantially affects welfare by redistributing resources across regions.
Article
We show that collateral constraints restrict firm entry and post-entry growth, using French administrative data and cross-sectional variation in local house-price appreciation as shocks to collateral values. We control for local demand shocks by comparing treated homeowners to controls in the same region that do not experience collateral shocks: renters, and homeowners with an outstanding mortgage, who (in France) cannot take out a second mortgage. In both comparisons, an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, treated entrepreneurs use more debt, start larger firms, and remain larger in the long run. This article is protected by copyright. All rights reserved
Article
This paper examines apparent fraud among securitized nonagency loans using three indicators: unreported second liens, owner occupancy misreporting, and appraisal overstatements. We find that around 48% of loans exhibited at least one indicator of misrepresentation. Surprisingly, misreporting is similar in both low and full documentation loans and is associated with a 51% higher likelihood of delinquency. Two-thirds of loans with unreported second liens had the same originator issuing both the first and second lien. Misrepresentations in MBS pools can explain substantial cross-sectional differences in future losses. Losses were predictable and initiating from apparent fraud by MBS underwriters and loan originators. © The Author 2016. Published by Oxford University Press on behalf of The Society for Financial Studies.
Article
ZIP codes with high concentrations of originators who misreported mortgage information experienced a 75% larger relative increase in house prices from 2003 to 2006 and a 90% larger relative decrease from 2007 to 2012 compared with other ZIP codes. Several causality tests show that high fractions of dubious originators in a ZIP code lead to large price distortions. Originators with high misreporting gave credit to borrowers with high ex ante risk, yet further understated the borrowers' true risk. Overall, excess credit facilitated through dubious origination practices explain much of the regional variation in house prices over a decade. Received August 24, 2015; accepted January 22, 2016 by Editor Matthew Spiegel.
Article
This paper examines the contribution of out-of-town second-house buyers to mispricing in the housing market. We show that demand from out-of-town second-house buyers during the mid 2000s predicted not only house-price appreciation rates but also implied-to-actual-rent-ratio appreciation rates, a proxy for mispricing. We then apply a novel identification strategy to address the issue of reverse causality. We give supporting evidence that out-of-town second-house buyers behaved like misinformed speculators, earning lower capital gains (misinformed) and consuming smaller dividends (speculators). Received August 4, 2014; accepted August 28, 2015 by Editor Stefan Nagel.
Article
We show that deterioration in household balance sheets, or the housing net worth channel, played a significant role in the sharp decline in U.S. employment between 2007 and 2009. Counties with a larger decline in housing net worth experience a larger decline in non-tradable employment. This result is not driven by industry-specific supply-side shocks, exposure to the construction sector, policy-induced business uncertainty, or contemporaneous credit supply tightening. We find little evidence of labor market adjustment in response to the housing net worth shock. There is no significant expansion of the tradable sector in counties with the largest decline in housing net worth. Further, there is little evidence of wage adjustment within or emigration out of the hardest hit counties.
Article
This paper documents the role of the collateral lending channel to facilitate small business starts and self-employment in the period before the financial crisis of 2008. We document that between 2002 and 2007 areas with a bigger run up in house prices experienced a strong increase in employment in small businesses compared to employment in large firms in the same industries. This increase in small business employment was particularly pronounced in (1) industries that need little startup capital and can thus more easily be financed out of increases in housing as collateral; (2) manufacturing industries where goods are shipped over long distances, which rules out that local demand is driving the expansion. We show that this effect is separate from an aggregate demand channel that relies on home equity based borrowing leading to increased demand and employment creation.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Article
The great housing convulsion that buffeted America between 2000 and 2010 has historical precedents, from the frontier land boom of the 1790s to the skyscraper craze of the 1920s. But this time was different. There was far less real uncertainty about fundamental economic and geographic trends, making the convulsion even more puzzling. During historic and recent booms, sensible models could justify high prices on the basis of seemingly reasonable projections about stable or growing prices. The recurring error appears to be a failure to anticipate the impact that elastic supply will eventually have on prices, whether for cotton in Alabama in 1820 or land in Las Vegas in 2006. Buyers don’t appear to be irrational but rather cognitively limited investors who work with simple heuristic models, instead of a comprehensive general equilibrium framework. Low interest rates rarely seem to drive price growth; under-priced default options are a more common contributor to high prices. The primary cost of booms has not typically been overbuilding, but rather the financial chaos that accompanies housing downturns.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Article
We explore a mostly undocumented but important dimension of the housing market crisis: the role played by real estate investors. Using unique credit-report data, we document large increases in the share of purchases, and subsequently delinquencies, by real estate investors. In states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with investors. In part by apparently misreporting their intentions to occupy the property, investors took on more leverage, contributing to higher rates of default. Our findings have important implications for policies designed to address the consequences and recurrence of housing market bubbles.
Article
Misstatement of income on mortgage loan applications (the "liar-loan" problem) is thought to have been a contributor to the boom and bust of mortgage markets. We provide nationwide measurements that reflect the degree to which incomes on mid-2000 home-purchase mortgage loan applications were overstated relative to the actual incomes of mortgage applicants. Our results suggest a substantial degree of income overstatement in 2005 and 2006, one consistent with the average mortgage application overstating income by almost 20 percent. We find the tendency to misstate income was influenced by securitization markets. We find limited evidence that income overstatement played a role in subsequent mortgage defaults.
Article
This paper uses an assignment model to understand the cross section of house prices within a metro area. Movers' demand for housing is derived from a lifecycle problem with credit market frictions. Equilibrium house prices adjust to assign houses that differ by quality to movers who differ by age, income and wealth. To quantify the model, we measure distributions of house prices, house qualities and mover characteristics from micro data on San Diego County during the 2000s boom. The main result is that cheaper credit for poor households was a major driver of prices, especially at the low end of the market.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Article
The past 25 years have represented two periods of extreme movements in U.S. and global house prices that appear to be much larger than can be easily explained by changes in fundamentals. These episodes spurred research on housing bubbles that focused attention on the role of outsized expectations in excessive house price appreciation. By contrast, some economists pointed to alternative explanations for excess volatility, including liquidity constraints, lending cycles, search externalities, and zoning delays. Empirical work supports the role of these factors in explaining at least some of the cyclical variation of house prices and inventories of homes for sale. Existing research does not yet provide a crisp definition of a housing bubble nor does it allow researchers to predict where or when bubbles can occur.
Article
We describe a rational expectations model in which speculative bubbles in house prices can emerge. When a bubble emerges, both speculators and their lenders prefer interest-only (IO) mortgages to traditional mortgages. By contrast, absent a bubble there is no scope for mutual gains from using IOs. Using data compiled for over 200 US cities for the period 2000-2008, we find that IOs were used sparingly in cities where elastic housing supply kept house prices in check, but were common in cities with inelastic supply where house prices rose sharply and then crashed. We confirm that the use of IOs in these cities is not proxying for other mortgage market characteristics such as subprime, securitization, or high leverage. Moreover, the use of IOs does not appear to have been a response to houses becoming more expensive; if anything, their use anticipated future appreciation. We also confirm that, as implied by our model, IOs were more likely to be repaid early, and those that survived until prices fell were more likely to default. These findings suggest that the recent boom-bust in the housing market was associated with a speculative bubble.
Article
I process satellite-generated data on terrain elevation and presence of water bodies to precisely estimate the amount of developable land in U.S. metropolitan areas. The data show that residential development is effectively curtailed by the presence of steep-sloped terrain. I also find that most areas in which housing supply is regarded as inelastic are severely land-constrained by their geography. Econometrically, supply elasticities can be well characterized as functions of both physical and regulatory constraints, which in turn are endogenous to prices and demographic growth. Geography is a key factor in the contemporaneous urban development of the United States.
Article
The Taxpayer Relief Act of 1997 (TRA97) significantly changed the tax treatment of housing capital gains in the United States. Before 1997, homeowners were subject to capital gains taxation when they sold their houses unless they purchased replacement homes of equal or greater value. Since 1997, homeowners can exclude capital gains of $500,000 (or $250,000 for single filers) when they sell their houses. Such dramatic changes provide a good opportunity to study the lock-in effect of capital gains taxation on home sales. Using 1982-2008 transaction data on single-family houses in 16 affluent towns within the Boston metropolitan area, I find that TRA97 reversed the lock-in effect of capital gains taxes on houses with low and moderate capital gains. Specifically, the semiannual sales rate of houses with positive gains up to $500,000 increased by 0.40-0.62 percentage points after TRA97, representing a 19-24 percent increase from the pre-TRA97 baseline sales rate. In contrast, I do not find TRA97 to have a significant effect on houses with gains above $500,000. Moreover, the short-term effect of TRA97 is much larger than the long-term effect, suggesting that many previously locked-in homeowners took advantage of the exclusions immediately after TRA97. In addition, I exploit the 2001 and 2003 legislative changes in the capital gains tax rate to estimate the tax elasticity of home sales during the post-TRA97 period. The estimation results suggest that a $10,000 increase in capital gains taxes reduces the semiannual home sales rate by about 0.1-0.2 percentage points, or 6-13 percent from the post-TRA97 average sales rate.
Article
We examine the consequences of existing regulations on the quality of mortgage loans originations in the originate-to-distribute (OTD) market. The information asymmetries in the OTD market can lead to moral hazard problems on the part of lenders. We find, using a plausibly exogenous source of variation in the ease of securitization, that the quality of loan origination varies inversely with the amount of regulation: more regulated lenders originate loans of worse quality. We interpret this result as a possible evidence that the fragility of lightly regulated originators' capital structure can mitigate moral hazard. In addition, we find that incentives which require mortgage brokers to have [`]skin in the game' and stronger risk management departments inside the bank partially alleviate the moral hazard problem in this setting. Finally, having more lenders inside a mortgage pool is associated with higher quality loans, suggesting that sharper relative performance evaluation made possible by more competition among contributing lenders can also mitigate the moral hazard problem to some extent. Overall, our evidence suggests that market forces rather than regulation may have been more effective in mitigating moral hazard in the OTD market. The findings caution against policies that impose stricter lender regulations which fail to align lenders' incentives with the investors of mortgage-backed securities.
Article
A central question surrounding the current subprime crisis is whether the securitization process reduced the incentives of financial intermediaries to carefully screen borrowers. We examine this issue empirically using data on securitized subprime mortgage loan contracts in the United States. We exploit a specific rule of thumb in the lending market to generate exogenous variation in the ease of securitization and compare the composition and performance of lenders' portfolios around the ad hoc threshold. Conditional on being securitized, the portfolio with greater ease of securitization defaults by around 10%–25% more than a similar risk profile group with a lesser ease of securitization. We conduct additional analyses to rule out differential selection by market participants around the threshold and lenders employing an optimal screening cutoff unrelated to securitization as alternative explanations. The results are confined to loans where intermediaries' screening effort may be relevant and soft information about borrowers determines their creditworthiness. Our findings suggest that existing securitization practices did adversely affect the screening incentives of subprime lenders.
Article
This paper studies household beliefs during the recent US housing boom. The first part presents evidence from the Michigan Survey of Consumers. To characterize the heterogeneity in households' views about housing and the economy, we perform a cluster analysis on survey responses at different stages of the boom. The estimation always finds a small cluster of households who believe it is a good time to buy a house because house prices will rise further. The size of this "momentum" cluster doubled towards the end of the boom. The second part of the paper provides a simple search model of the housing market to show how a small number of optimistic investors can have a large effect on prices without buying a large share of the housing stock.
Article
Like many other assets, housing prices are quite volatile relative to observable changes in fundamentals. If we are going to understand boom-bust housing cycles, we must incorporate housing supply. In this paper, we present a simple model of housing bubbles that predicts that places with more elastic housing supply have fewer and shorter bubbles, with smaller price increases. However, the welfare consequences of bubbles may actually be higher in more elastic places because those places will overbuild more in response to a bubble. The data show that the price run-ups of the 1980s were almost exclusively experienced in cities where housing supply is more inelastic. More elastic places had slightly larger increases in building during that period. Over the past five years, a modest number of more elastic places also experienced large price booms, but as the model suggests, these booms seem to have been quite short. Prices are already moving back towards construction costs in those areas.
Article
We present a model to study the dynamics of risk premia during crises in asset markets where the marginal investor is a financial intermediary. Intermediaries face a constraint on raising equity capital. When the constraint binds, so that intermediaries' equity capital is scarce, risk premia rise to reflect the capital scarcity. We calibrate the model and show that it does well in matching two aspects of crises: the nonlinearity of risk premia during crisis episodes; and, the speed of adjustment in risk premia from a crisis back to pre-crisis levels. We use the model to quantitatively evaluate the effectiveness of a variety of central bank policies, including reducing intermediaries' borrowing costs, infusing equity capital, and directly intervening in distressed asset markets. All of these policies are effective in aiding the recovery from a crisis. Infusing equity capital into intermediaries is particularly effective because it attacks the equity capital constraint that is at the root of the crisis in our model.
Article
This article studies how a shock to the financial health of banks, caused by a decline in the asset markets, affects the real economy. The land market collapse in Japan provides an ideal testing field in separating the impact of a loan supply shock from demand shocks. I find that banks with greater real estate exposure have to reduce lending. Firms' investment and market valuation are negatively associated with their top lender's real estate exposure. The lending channel is economically important: it accounts for one-third of lending contraction, one-fifth of the decline in investment, and a quarter of value loss.
Article
This paper examines the inflation in housing prices between 1998 and 2005 and investigates whether this run-up in prices can be ‘‘explained’’ by increases in demand fundamentals such as population, income growth, and the decline in interest rates over this period. Time series models are estimated for 59 MSA markets and price changes from 1998 to 2005 are dynamically forecast using actual economic fundamentals to drive the models. In all 59 markets, the growth in fundamentals from 1998 to 2005 forecasts price growth that is far below that which actually occurred. An examination of the 2005 forecast errors reveals they are greater in larger MSAs, in MSAs where second home and speculative buying was prevalent, and in MSAs where indicators suggest the sub-prime mortgage market was most active. These latter factors are unique to the recent housing market and hence make it difficult to asses if and how far housing prices will ‘‘correct’’ after 2005.
Article
This paper looks for evidence of a bubble in U.S. housing prices. It analyzes quarterly state-level data over 1985-2002, focusing on the relationship between home prices and selected fundamental variables. Income per capita alone largely explains price changes in all but eight states; in the latter, large price movements are observed unrelated to the fundamentals. Results from a new survey of recent homebuyers in the Los Angeles, San Francisco, Boston, and Milwaukee metropolitan areas are reported. This survey replicates an almost identical 1988 survey and finds, as before, that buyers in most of these markets perceive little risk in their housing investment, have unrealistic expectations about future price increases, and hold economically implausible beliefs about home price behavior—findings consistent with a bubble. Prices in such markets could stall or decline, but only if such declines are simultaneous or spread to other markets are significant effects on the national economy likely.
What have they been thinking? Homebuyer behavior in hot and cold markets
  • Case,
Wall Street and the housing bubble
  • Cheng,
  • DeFusco,
Credit supply and the price of housing
  • Favara,
  • Albanesi,
  • Haughwout,
  • Kaplan,
Originate-to-distribute model and the subprime mortgage crisis
  • Purnanandam,
Recovery from the Great Recession: Explaining differences among states
  • Walden,
  • A. Haughwout,
  • R. W. Peach
  • J. Sporn
  • J. Tracy
  • E. L. Glaeser
  • T. Sinai
Assessing high house prices: Bubbles, fundamentals, and misperceptions
  • Himmelberg,
Household balance sheets, consumption, and the economic slump
  • Mian,
House prices, home equity-based borrowing, and the US household leverage crisis
  • Mian,
  • Nathanson,
Asset quality misrepresentation by financial intermediaries: Evidence from the RMBS market
  • Piskorski,