An extrapolative model of house price dynamics

Edward L. Glaeser and Charles G. Nathanson

Journal of Financial Economics, 2017, vol. 126, issue 1, 147-170

Abstract: 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.

Keywords: Extrapolation; House prices (search for similar items in EconPapers)
JEL-codes: D03 D84 G12 R21 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (111)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:126:y:2017:i:1:p:147-170

DOI: 10.1016/j.jfineco.2017.06.012

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