What Have They Been Thinking? Homebuyer Behavior in Hot and Cold Markets [with Comments and Discussion]

• Published in: Brookings papers on economic activity 2012-10, Vol.2012 (2), p.265-315
• Main Authors: CASE, KARL E., SHILLER, ROBERT J., THOMPSON, ANNE K., LAIBSON, DAVID, WILLEN, PAUL
• Format: Article
• Language: English
• Subjects: Capital assets; Economic bubbles; Economic expectations; Economic surveys; Government sponsored enterprises; Home buyers; Housing; Housing market; Housing prices; Housing starts; Metropolitan areas; Mortgage loans; Mortgages; Polls & surveys; Price changes; Questionnaires; Rating services; Real estate bubbles; Real estate sales; Studies
• ISSN: 0007-2303; 1533-4465; 1533-4465; 0007-2303
• DOI: 10.1353/eca.2012.0014

Questionnaire surveys undertaken in 1988 and annually from 2003 through 2012 of recent homebuyers in each of four U.S. metropolitan areas shed light on their expectations and reasons for buying during the recent housing boom and subsequent collapse. They also provide insight into the reasons for the housing crisis that initiated the current financial malaise. We find that homebuyers were generally well informed, and that their shortrun expectations if anything underreacted to the year-to-year change in actual home prices. More of the root causes of the housing bubble can be seen in their long-term (10-year) home price expectations, which reached abnormally high levels relative to mortgage rates at the peak of the boom and have declined sharply since. The downward turning point, around 2005, of the long boom that preceded the crisis was associated with changing public understanding of speculative bubbles.