House price dynamics with dispersed information

Giovanni Favara and Zheng Song ()

Journal of Economic Theory, 2014, vol. 149, issue C, 350-382

Abstract: We use a user-cost model to study how dispersed information affects the equilibrium house price. In the model, agents are disparately informed about local economic conditions, consume housing services, and speculate on price changes. Optimists, who expect high house price growth, buy in anticipation of capital gains; pessimists, who expect capital losses, prefer to rent. Because of short-selling constraints on housing, pessimistic expectations are not incorporated in the price of owned houses and the equilibrium price is higher and more volatile relative to the benchmark case of common information. We present evidence supporting the modelʼs predictions in a panel of US cities.

Keywords: Housing prices; Information dispersion; Income dispersion (search for similar items in EconPapers)
JEL-codes: G10 R21 R23 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:149:y:2014:i:c:p:350-382

DOI: 10.1016/j.jet.2013.05.001

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