Understanding Booms and Busts in Housing Markets

Sergio Rebelo (), Martin Eichenbaum and Craig Burnside

No 114, 2012 Meeting Papers from Society for Economic Dynamics

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 consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of "social dynamics." Agents meet randomly. Those with tighter priors are more likely to convert others 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.

Date: 2012
New Economics Papers: this item is included in nep-dge and nep-ure
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Citations: View citations in EconPapers (5)

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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 (2011)
Working Paper: Understanding Booms and Busts in Housing Markets (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:114

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