Optimists and Pessimists in the Housing Market

Haoyang Liu () and Christopher Palmer

No 20191016, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Given momentum in house prices over business cycles, research on consumer beliefs since the financial crisis has honed in on the potential importance of extrapolative beliefs?myopically assuming trends in asset prices will continue. Extrapolation is frequently cited as a central reason for excessively optimistic expectations about future asset prices, featuring prominently, for example, in the irrational exuberance narrative of Shiller. Other influential work since the Great Recession has emphasized the outsized role that extrapolative optimists can have in bubble formation. In this post, we look at how much dispersion there is in the amount of house price extrapolation and how consequential extrapolative beliefs could be for house price dynamics.

Keywords: Liberty Street Economics; Survey of Consumer Expectations (SCE); Quantile Regression; Home Price Appreciation; extrapolation; heterogeneity; Christopher Palmer; Extrapolation (search for similar items in EconPapers)
Date: 2019-10-16
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