The Role of People’s Expectation in the Recent US Housing Boom and Bust

This paper investigates how an important driver of the recent housing boom and bust, people’s expectation, influences housing asset returns. Specifically, it extends the volatility feedback model to study the relationship between housing volatility and asset returns during 19632007. The analysis considers two alternative breakpoints, 1984Q1 and 1999Q1, in order to distinguish the permanent structural break from temporary Markov-switching...