Understanding booms and busts in housing markets

Craig Burnside, Martin Eichenbaum and Sergio Rebelo ()

No 2012-02, FRB Atlanta CQER Working Paper from Federal Reserve Bank of Atlanta

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. Real estate agents have heterogeneous expectations about long-run fundamentals but change their views because of \"social dynamics.\" Agents meet randomly with one another. 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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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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