An extrapolative model of house price dynamics

Edward L. Glaeser, Charles G. Nathanson*

*Corresponding author for this work

Research output: Contribution to journalArticle

35 Scopus citations

Abstract

A model in which homebuyers make a modest approximation leads house prices to display three features present in the data but usually missing from rational models: momentum at one-year horizons, mean reversion at five-year horizons, and excess longer-term volatility relative to fundamentals. Approximating buyers assume that past prices reflect only contemporaneous demand, just like professional economists who use trends in housing prices to infer trends in housing demand. Consistent with survey evidence, this approximation leads buyers to expect increases in the market value of their homes after recent house price increases.

Original languageEnglish (US)
Pages (from-to)147-170
Number of pages24
JournalJournal of Financial Economics
Volume126
Issue number1
DOIs
StatePublished - Oct 2017

Keywords

  • Extrapolation
  • House prices

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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