Lower-priced homes saw higher expected gains in 2000s housing boom
A Federal Reserve Board paper finds that lower-priced houses had higher expected capital gains during the U.S. housing boom of the 2000s. This pattern suggests an interaction between buyer beliefs and credit conditions.
Lower prices, higher expectations
A new Federal Reserve Board paper by Margaret M. Jacobson reveals that expected capital gains were notably higher for relatively lower-priced houses compared to higher-priced ones during the U.S. housing boom of the 2000s.
This pattern was observed across all studied metropolitan statistical areas (MSAs).
The research highlights that buyers of lower-priced homes are typically more sensitive to credit conditions.
This interaction between optimistic beliefs and accessible credit is crucial for understanding the boom, especially given the scarcity of direct evidence on house price beliefs prior to 2007.
The findings are significant for unifying beliefs and credit conditions as joint, rather than competing, explanations for the housing market dynamics of that era.
Mapping beliefs across diverse markets
To investigate how beliefs varied across housing price segments, the paper employs a statistical model of price changes using Zillow ZTRAX transaction data on repeat housing sales.
This methodology allows for the estimation of expected capital gains and their cross-sectional dispersion.
The analysis expands beyond San Diego, CA, to include Phoenix, AZ, and Cleveland, OH.
This broader scope provides a more comprehensive understanding of the 2000s housing boom, which varied significantly across metropolitan statistical areas.
The selected MSAs represent diverse submarkets, from San Diego's low housing supply elasticity to Phoenix's rapid growth and Cleveland's depopulation.
Unifying two boom drivers
This study provides a crucial empirical link between buyer beliefs and credit conditions, moving beyond their traditional separate treatment.
The evidence on price-segmented beliefs offers a valuable, indirect window into a data-scarce period, strengthening the case for an integrated view of market dynamics.
Its expansion to diverse MSAs significantly enriches understanding of the 2000s boom's complex regional variations, a robust contribution.