Working Papers

        Revise & Resubmit: Review of Financial Studies  
        2015 AFA Meetings Paper, January, Boston, MA
        Coverage in Wall Street Journal

This paper develops first measures of local housing sentiment for 34 cities across the U.S. by quantifying the qualitative tone of local housing news. I find that housing media sentiment has significant predictive power for future house prices, above and beyond his- torically predictive factors and past returns. Sentiment leads price movements by more than two years, and is highly correlated with available survey expectations measures. The structure of the media sentiment index itself reflects a backward-looking nature consistent with extrapolative expectations. Consistent with theories of sentiment, the media sentiment index has a greater effect in markets with more minority homebuyers, more speculative investors, and across lower-priced homes. Including additional controls for subprime lending and easy credit has no impact on the magnitude of the results, but the predictive effect of sentiment is amplified in markets where more subprime loans were issued. Directly investigating the content across news articles finds that results are not driven by news stories of unobserved fundamentals.


        with Todd Sinai
        2014 ASSA Meetings paper, January 3-6 Philadelphia, PA

We create robust measures of the cost of owning and the cost of renting that enable us to compare the level of rents and ownership costs across MSAs. We show that households can predict whether renting or owning will end up being less expensive ex post.  This exercise is more robust than trying to predict house price changes or housing returns because much of that uncertainty is inframarginal in the optimal own/rent decision, which depends only on the which tenure mode is cheaper.  We show that households can profitably time the home ownership decision.  Using several simple trading rules, we estimate that households can save as much as 50 percent of annual rental costs over a five-year period by timing the decision of when to buy a home.  The potential savings varies across cities.  



Start Spreading the News: Contagious Sentiment Across Local Markets

Seminal literature on speculative bubble often hypothesizes that beliefs are contagious and specifically  spread through news stories. I empirically test a theory of contagious sentiment across local housing  markets in the last housing bubble. Using novel measures of local housing market sentiment, I document the relative timing of sentiment booms across cities and find coordinated movements that suggest a contagion of sentiment across markets. I then specifically test a theory that news is a mechanism for contagious sentiment across markets. I exploit my dataset on local housing news and quantify the number of times a local newspaper mentions another city. I then examine the effect of this variable on measure of local housing demand to directly test whether this is a potential source of contagion. Results show that sentiment from other cities does have a significant impact on local housing returns, and that this effect is amplified by the number of times a newspaper reports on other cities. News media appears to be one mechanism through which sentiment spreads across local markets.


Publications

       with Jere R. Behrman and Olivia S. Mitchell
       American Economic Review P&P, May 2012, Vol. 102, No. 3, p. 300-304.

       with Charles Noussair 
       Economics Letters, January 2008, Vol. 98, No. 1, p. 71-77

Research Interests

Behavioral Finance, Real Estate Finance, Household Finance