What Have They Been Thinking? Homebuyer Behavior in Hot and Cold Markets

Anne K. Thompson,

Anne K. Thompson Lecturer and Research Scientist - MIT

Karl E. Case, and

KEC

Karl E. Case Wellesley College

Robert J. Shiller

Robert J. Shiller Sterling Professor of Economics - Yale University

Discussants: David Laibson and

David Laibson

Paul Willen

Paul Willen Senior Economist and Policy Advisor - Federal Reserve Bank of Boston

Questionnaire surveys undertaken in 1988 and annually from
2003 through 2012 of recent homebuyers in each of four U.S. metropolitan
areas shed light on their expectations and reasons for buying during the
recent housing boom and subsequent collapse. They also provide insight into
the reasons for the housing crisis that initiated the current financial malaise.
We find that homebuyers were generally well informed, and that their shortrun
expectations if anything underreacted to the year-to-year change in actual
home prices. More of the root causes of the housing bubble can be seen in their
long-term (10-year) home price expectations, which reached abnormally high
levels relative to mortgage rates at the peak of the boom and have declined
sharply since. The downward turning point, around 2005, of the long boom
that preceded the crisis was associated with changing public understanding of
speculative bubbles.