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The Formation of Subjective House Price Expectations

Author

Listed:
  • Sarah Kiesl-Reiter

    (ifo Institute)

  • Melanie Lührmann

    (Royal Holloway, University of London)

  • Jonathan Shaw

    (Institute for Fiscal Studies, London)

  • Joachim Winter

    (LMU Munich)

Abstract
Subjective house price expectations drive individual housing choices and market dynamics. We study the formation of subjective expectations about local house prices using novel survey data from Britain, a country with high homeownership rates and widely varying local housing dynamics. There is a substantial and heterogeneous perception gap and individuals extrapolate strongly from perceived but not from realized past price changes. In addition, expectations are predicted by wider, easily observable measures of local economic conditions, especially among individuals with low financial sophistication. Individuals residing in local housing markets where past prices are less informative or less observable rely more strongly on local economic conditions in their belief formation. Our results emphasize the role of heterogeneity in expectations formation processes, and their underlying information set.

Suggested Citation

  • Sarah Kiesl-Reiter & Melanie Lührmann & Jonathan Shaw & Joachim Winter, 2024. "The Formation of Subjective House Price Expectations," Rationality and Competition Discussion Paper Series 491, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:491
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    subjective expectations; housing markets; local economic conditions;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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