Understanding Booms and Busts in Housing Markets

Craig Burnside, Martin Eichenbaum and Sergio Rebelo ()

Journal of Political Economy, 2016, vol. 124, issue 4, 1088 - 1147

Abstract: Some booms in housing prices are followed by busts. Others are not. It is generally difficult to find observable fundamentals that are useful for predicting whether a boom will turn into a bust or not. We develop a model consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of “social dynamics.” Agents with tighter priors are more likely to convert others to their beliefs. Boom-bust episodes typically occur when skeptical agents happen to be correct. The booms that are not followed by busts typically occur when optimistic agents happen to be correct.

Date: 2016
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Citations: View citations in EconPapers (181)

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Related works:
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)
Working Paper: Understanding Booms and Busts in Housing Markets (2011)
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