Home price expectations and behaviour: Evidence from a randomized information experiment

Luis Armona, Andreas Fuster, Basit Zafar

Research output: Contribution to journalArticlepeer-review

57 Scopus citations


Home price expectations are believed to play an important role in housing dynamics, yet we have limited understanding of how they are formed and how they affect behaviour. Using a unique “information experiment” embedded in an online survey, this article investigates how consumers’ home price expectations respond to past home price growth, and how they impact investment decisions. After eliciting respondents’ priors about past and future local home price changes, we present a random subset of them with factual information about past (one- or five-year) changes, and then re-elicit expectations. This unique “panel” data allows us to identify causal effects of the information, and provides insights on the expectation formation process. We find that, on average, year-ahead home price expectations are revised in a way consistent with short-term momentum in home price growth, though respondents tend to underpredict the strength of momentum. Revisions of longer-term expectations show that respondents do not expect the empirically-occurring mean reversion in home price growth. These patterns are in line with recent behavioural models of housing cycles. Finally, we show that home price expectations causally affect investment decisions in a portfolio choice experiment embedded in the survey.

Original languageEnglish (US)
Pages (from-to)1371-1410
Number of pages40
JournalReview of Economic Studies
Issue number4
StatePublished - Jul 1 2019


  • Expectation formation
  • Housing
  • Information
  • Updating

ASJC Scopus subject areas

  • Economics and Econometrics


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