Understanding Booms and Busts in Housing Markets

Martin Eichenbaum, Sergio Rebelo () and Craig Burnside

No 8232, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Some booms in housing prices are followed by busts. Others are not. In either case it is difficult to find observable fundamentals that are correlated with price movements. We develop a model that is consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of "social dynamics". Agents meet randomly and those with tighter priors are more likely to convert other agents to their beliefs. The model generates a "fad": the fraction of the population with a particular view rises and then falls. Depending on which agent is correct about fundamentals, these fads generate boom-busts or protracted booms.

Keywords: Housing prices; Real estate (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 2011-02
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Citations: View citations in EconPapers (98)

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Related works:
Journal Article: Understanding Booms and Busts in Housing Markets (2016)
Working Paper: Understanding booms and busts in housing markets (2012)
Working Paper: Understanding Booms and Busts in Housing Markets (2012)
Working Paper: Understanding Booms and Busts in Housing Markets (2011)
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