Price Expectations and the U.S. Housing Boom / Pascal Towbin, Sebastian Weber.

Format:

Book

Government document

Author/Creator:

Towbin, Pascal.

Contributor:

Weber, Sebastian.

Series:

IMF Working Papers; Working Paper ; No. 2015/182

IMF Working Papers

Language:

English

Subjects (All):

Housing--Prices--United States.

Housing.

Housing--United States.

Physical Description:

1 online resource (36 pages)

Edition:

1st ed.

Place of Publication:

Washington, D.C. : International Monetary Fund, 2015.

Summary:

Between 1996 and 2006 the U.S. has experienced an unprecedented boom in house prices. As it has proven to be difficult to explain the large price increase by observable fundamentals, many observers have emphasized the role of speculation, i.e. expectations about future price developments. The argument is, however, often indirect: speculation is treated as a deviation from a benchmark. The present paper aims to identify house price expectation shocks directly. To that purpose, we estimate a VAR model for the U.S. and use sign restrictions to identify house price expectation, housing supply, housing demand, and mortgage rate shocks. House price expectation shocks are the most important driver of the boom and account for about 30 percent of the real house price increase. We also construct a model-based measure of exogenous changes in price expectations and show that this measure leads a survey-based measure of changes in house price expectations. Our main identification scheme leaves open whether expectation shifts are realistic or unrealistic. In extensions, we provide evidence that price expectation shifts during the boom were primarily unrealistic and were only marginally affected by realistic expectations about future fundamentals.

Contents:

Cover

Contents

I: Introduction

II: Empirical Framework

A: Model and Data

B: Identification

C: Computational Implementation

III: Results

A: Impulse Response Functions

B: Contribution of Price Expectation Shocks to the Housing Boom And Bust

C: Forecast Error Variance Decomposition

D: Comparison of Price Expectation Shocks with Surveys about Price Expectations

E: Realistic versus Unrealistic Price Expectation Shocks

IV: Robustness

A: Alternative Summary Measures of the Set of Accepted Impulse Responses

B: Different Sample Length, Lag Length, and Trends

C: Accounting for Shocks to LTV Standards

D: Alternative Price Measures

V: Conclusion

References

Annexes

Figures

1 Evolution of Variables over Time

2 Baseline Model: Impulse Response Functions

3 Historical Decomposition of Real House Price Developments

4 Survey-based Expectations versus Model-based Expectations

5 NPV[sub(0),sub(T)] for Expanding Investment Horizon

6 Realistic and Unrealistic Price Expectation Shocks: Impulse Response Functions

7 Realistic and Unrealistic Price Expectation Shocks: Historical Decomposition

8 Historical Contribution of Price Expectation Shock to Real House Price Developments

Tables

1 Baseline Shock Identification

2 Contribution of Shocks to Price Boom and Bust

3 Variance Decomposition

4 Correlation of Model-based Expectation Measure (t) with Survey-based Measure (t+i)

5 Contribution of Shocks to Price Boom, Alternative Models

6 Shock Identification including LTV Shock.

Notes:

Includes bibliographical references.

Description based on publisher supplied metadata and other sources.

Description based on online resource; title from PDF title page (EBook Central, viewed June 19, 2025).

ISBN:

9781513581279

1513581279

9781513598819

1513598813

9781513522074

1513522078

OCLC:

946309218