Momentum Traders in the Housing Market: Survey Evidence and a Search Model

This paper studies household beliefs during the recent US housing boom.To characterize the heterogeneity in households’ views about housing and the economy, we perform a cluster analysis on survey responses at different stages of the boom.The estimation always finds a small cluster of households who believe it is a good time to buy a house because house prices will rise further.The size of this “momentum” cluster doubled towards the end of the boom.We also provide a simple search model of the housing market to show how a small number of optimistic investors can have a large effect on prices without buying a large share of the housing stock.