COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1876 WHAT HAVE THEY BEEN THINKING? Karl E. Case, Robert J. Shiller and Anne Thompson September 2012 Questionnaire surveys we have undertaken in 1988 and annually
2003–2012 of recent homebuyers in each of four U.S. cities shed light on their
expectations and reasons for buying and selling during the recent housing boom and
subsequent collapse, and on the reasons for the housing crisis that initiated the current
financial malaise. We find that homebuyers were generally well informed, and that their
short-run expectations if anything underreacted to the year-to-year change in actual home
prices. More of the root causes of the bubble can be seen in their long-term, ten-year,
home price expectations, which reached abnormal levels relative to the mortgage rate at
the peak of the boom and 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. |
