House Price Expectations and Housing Choice

Alexander Ludwig, Jochen Mankart, Jorge Quintana, Mirko Wiederholt and Nathanaël Vellekoop
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Mirko Wiederholt: Sciences Po

No 848, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: What is the role of heterogenous house-price expectations for boom-bust cycles in the housing market? We exploit a unique Dutch panel data set on households' house price expectations and their consumption, savings and housing choices for the period 2003-2016. This period was characterized by a pronounced boom-bust cycle in the housing market. Conditioning the sample on household heads who report non-zero house price expectations, we find that expectations closely track realized house prices. We next develop a structural life-cycle model of the Dutch housing market where we distinguish household types according to their house price expectations. We employ a calibrated model variant to test if observed variations in expectations can account for the housing boom-bust cycle. First results show that our model closely matches the observed fluctuations of the rent-to-price ratio in the data but overshoots the size of the housing boom.

Date: 2019
New Economics Papers: this item is included in nep-dge and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:848

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